BB likely to maintain contractionary monetary policy stance for H1 FY26

Highlights

• Monetary Policy Statement to be unveiled tomorrow
• Policy rate to remain unchanged at 10%
• Bringing down inflation to 6.5% is the target

With a target to bring down inflation to 6.5%, the Bangladesh Bank is likely to maintain a tightened monetary policy stance for the second half of the 2025-26 fiscal year that will keep the policy interest rate and private sector credit flow unchanged, according to its Monetary Policy Review 2024-25 released today (29 July).

The central bank is scheduled to officially unveil its new Monetary Policy Statement (MPS) at 3pm on Thursday. Governor Ahsan H Mansur will preside over the announcement as chief guest. 

The new MPS will outline Bangladesh Bank's framework for determining domestic credit, money supply, and the volume of foreign and domestic assets.

Multiple Bangladesh Bank officials indicate that the central bank is set to announce a "routine monetary policy" in light of the upcoming national elections, keeping the policy interest rate and private sector credit flow unchanged. 

They say that political uncertainty has made businesses reluctant to pursue new investments. Concurrently, the Bangladesh Bank has affirmed its position to keep interest rates unchanged until inflation falls below 7%. 

While the monetary policy for the second half of FY26 might hint at more significant changes, the current announcement will not feature major policy shifts, with its primary focus remaining on controlling inflation.

The Monetary Policy Review report states that the economy is still facing key macroeconomic challenges such as high inflation, external sector pressures and weaknesses in the financial system. Its primary goal remains to bring inflation down to a tolerable level while supporting economic recovery.

The central bank noted that recent months have shown signs of moderation in inflation after a contractionary policy stance was adopted to bring it below 9% by the end of FY25. To consolidate this trend, the tightened monetary policy will continue through the first half of FY26.

The review also highlighted the need for supportive fiscal measures alongside monetary actions to address both demand- and supply-side factors of inflation. Policymakers expressed optimism that prudent coordination will stabilise the macroeconomic environment and help achieve the FY26 inflation and growth targets.