New pay scale, fuel prices compound inflation risks: Bangladesh Bank
Announcing the monetary policy for October-December, the central bank says easing inflationary pressure has not yet provided enough evidence for monetary policy to be relaxed further.
Highlights:
- Headline inflation falls to 8.26% in August
- Bangladesh Bank keeps SLF at 11%, SDF at 7.5%
- Non-food inflation remains high at 9.32%
- Private-sector credit growth slows to 4.75%
- Food inflation falls to 7.02% in August
- GDP growth estimated at 4.14% in FY2025-26
- Tk60,000cr support package announced for economic recovery
- Bank NPL ratio rises to 32.78% in June
- Remittances grow 18.9% in first two months of FY27
Looming cost shocks and emerging fiscal burdens threaten to reverse Bangladesh's recent gains in inflation control, prompting the central bank to keep its policy rate unchanged at 9.5% despite headline inflation cooling to a 10-month low of 8.26% in August 2026.
According to Bangladesh Bank's maiden Quarterly Monetary Policy Statement (QMPS) for October-December 2026, announced today (30 September), the primary catalysts behind persistent price risks are the recent upward adjustment in administered fuel prices and the partial implementation of the new national pay scale.
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"The recent increase in administered fuel prices is likely to raise transport and production costs, while partial implementation of the national pay scale could add further inflationary and fiscal pressures," the central bank noted in its policy statement.
A Tk20 per litre price hike across all fuel oils earlier this month is already rippling through the real economy, driving up freight and energy expenses for manufacturers, agricultural producers, and logistics networks.
While food inflation moderated to 7.02% in August, non-food inflation remained elevated at 9.32%, underscoring deep-seated price pressures likely to intensify as higher transportation tariffs take full effect.
The Standing Lending Facility rate has also been retained at 11% and the Standing Deposit Facility rate at 7.5%, Deputy Governor Habibur Rahman said while announcing the quarterly monetary policy at the central bank headquarters today (30 September).
The decision was taken at the 14th meeting of the Monetary Policy Committee on 23 September.
The central bank said global fuel price increases, disruptions in the Strait of Hormuz, upward adjustments in controlled domestic fuel prices, and the likely implementation of a new pay scale could add to inflationary pressure.
It warned that easing monetary policy prematurely could raise inflation expectations and delay the return of inflation to the target range.
Growth remains under pressure
The monetary policy statement said economic activity remains subdued, with real GDP growth estimated at 4.14% in FY2025-26. Growth in the third quarter of the fiscal year was estimated at 2.2%, while industrial production contracted 0.28% during the period.
High financing costs, energy shortages, infrastructure constraints, and uncertainty over domestic and external demand continue to weigh on economic activity, it said.
The new monetary framework acknowledges that a Tk 60,000 crore stimulus package - which includes Tk 20,000 crore dedicated to reopening closed factories - is expected to support economic recovery.
However, the central bank cautioned that "monetary policy alone cannot address the supply-side constraints weighing on growth", signalling that rate cuts alone will not resolve structural bottlenecks.
Private-sector credit growth remains weak
Private-sector credit growth stood at just 4.75% in August 2026, reflecting weak investment and lending demand, borrower risks, and weaknesses in the banking sector.
Despite a 50-basis-point policy rate reduction in early August, credit transmission to the real economy "remains weak".
While financial conditions have eased within interbank markets and government securities, that liquidity has failed to reach businesses.
The share of non-performing loans (NPLs) in the banking sector also rose to 32.78% in June 2026.
The central bank explicitly linked this high NPL ratio to weak credit flow and elevated borrower risk, stressing the urgent need for "bank restructuring, stronger governance, capital restoration, and improved credit discipline."
Remittances provide external-sector support
The balance of payments recorded a surplus of $6.6 billion in FY26. However, the overall balance turned negative in the first two months of FY2026-27, mainly due to a deficit in the financial account.
Remittance inflows rose 18.90% during the period, providing some support to the external sector. The relatively stable exchange rate also helped contain imported inflation.
Bangladesh Bank expects a gradual rather than rapid economic recovery in the coming fiscal year. The World Bank projects 4.6% growth for FY2026-27, while the International Monetary Fund has lowered its forecast to 3.5% from 4.3%.
The central bank expects inflation to gradually ease next fiscal year, although the pace of the decline remains uncertain.
