BB cuts policy rate by 50 basis points after 2 years

Highlights:

• BB cuts policy rate to 9.5%
• Rate cut aims to boost private sector credit and investment
• Standing Lending Facility rate reduced by 50 basis points
• Standing Deposit Facility  rate unchanged at 7.5%
• Revised policy rates to take effect from 2 August 

After nearly two years, the Bangladesh Bank has reduced its policy interest rate (repo rate) – the benchmark for short-term lending – by 50 basis points to 9.5%, aiming to stimulate private sector investment despite persistently high inflation.

The central bank had last raised the repo rate from 9.5% to 10% in October 2024, and had maintained it at that level since then.

Bankers said the central bank had taken the right decision by lowering the policy rate, as it would enable banks to access funds at lower interest rates, which could in turn reduce borrowing costs for customers. However, they stressed that the government would need to place greater emphasis on supply-side measures to boost private sector credit growth.

According to Bangladesh Bank data, private sector credit growth fell to a historic low of 4.72% in May. In contrast, the central bank has set a 6.8% growth target for private sector credit in its current monetary policy.

On 30 June, the government announced a contractionary monetary policy for the first half (July-December) of the 2026-27 fiscal year, keeping the policy rate unchanged at 10%. However, just a month later, the central bank reversed that decision by cutting the rate by 50 basis points.

The decision was taken at a meeting of the Monetary Policy Committee (MPC) chaired by Bangladesh Bank Governor Mostaqur Rahman today (30 July). Acting on the committee's recommendations, the central bank approved the rate cut.

In a statement, Bangladesh Bank said it had reviewed domestic and global economic conditions before deciding to reduce the policy rate – its primary monetary policy tool – by 50 basis points to 9.5%.

At the same time, it lowered the Standing Lending Facility (SLF) rate, which serves as the upper limit of the interest rate corridor, by 50 basis points, from 11.5% to 11.0%.

However, the Standing Deposit Facility (SDF) rate, which serves as the lower limit of the interest rate corridor, has been kept unchanged at 7.5%.

The new rates will come into effect from 2 August 2026.

Inflation remains elevated despite prolonged tight monetary policy

According to the Bangladesh Bureau of Statistics (BBS), point-to-point inflation stood at 9.16% in June 2026, down from 9.42% in May, but still higher than the 8.48% recorded in June 2025. Despite maintaining a contractionary monetary policy for an extended period, Bangladesh Bank has yet to bring inflation down to its desired level.

Syed Mahbubur Rahman, managing director of Mutual Trust Bank, told The Business Standard that one of the main reasons behind weak private sector investment is the impact of ongoing global conflicts.

"At this moment, we are facing a severe energy crisis. If the government can ensure an adequate supply of electricity and gas to every factory, production will increase, and so will private sector investment," he said.

He added that banks' cost of deposits remains high, keeping lending rates elevated for borrowers.

"The government has already announced a large incentive package. Even so, investment is not picking up because businesses remain uncertain about whether they will be able to export the goods they produce," he said.

Private sector credit flow weakens

The country's private sector credit growth fell to a historic low of 4.72% in May, reflecting weak business confidence, slowing investment and growing economic uncertainty.

Economists and bankers said political uncertainty had eased somewhat following the February election, but the structural challenges holding back investment and business expansion remain unresolved.

They added that the recent fuel crisis has further dampened lending activity by disrupting industrial production and business operations.

According to Bangladesh Bank data, private sector credit growth has been on a steady downward trend in recent months. It declined from 6.58% in November 2025 to 6.20% in December, then to 6.03% in both January and February 2026, before dropping sharply to 4.72% in May.