GDP to decelerate, but domestic demand rebound expected: BB

Bangladesh's GDP growth in the current fiscal year (FY25) is expected to decelerate to 4-5%, largely due to a combination of natural and industrial disruptions, according to the new monetary policy announced on Monday for the second half of this fiscal year.

The policy says the country has faced severe output losses from devastating floods in several districts, labour unrest in key industrial zones, and gas supply shortages that have hampered manufacturing productivity. Also, the delayed execution and resizing of the Annual Development Programme (ADP) and disruptions linked to the student-led uprising have constrained economic activity.

Despite these headwinds, the new MPS says a rebound in domestic demand is expected, driven by rising remittance inflows and an uptick in both exports and imports. These factors could partially offset the immediate growth slowdown, providing a foundation for a stronger recovery in the subsequent fiscal years, it says.

Aside from this, the Bangladesh Bank also spelled out other challenges and prospects.

On the interim government's massive reforms, it said the efforts can benefit the economy in the medium to long term. 

It also said the strong domestic political support for financial sector reforms and commensurate support from international development partners underpin the prospects for further momentum to economic recovery. 

For near-term challenges, the bank identified bringing inflation down further, maintaining exchange rate stability, sustaining the rebuilding of foreign exchange reserves, and reviving confidence in the banking system. 

"Global economic uncertainties, coupled with domestic political uncertainties, create complex macroeconomic challenges requiring vigilance and proactive policy response," said the MPS.

'Domestic inflationary pressures to alleviate'

In the MPS, the central bank acknowledged that inflation in Bangladesh remained above comfortable levels despite recent improvements. 

It identified delayed and inadequate policy responses in earlier periods and contraction of aggregate supply due to agricultural production losses and disruptions in supply chains caused by the twin floods in August and September 2024 as contributing to inflationary pressures.

It said, "However, a decline in global prices, a moderation of geopolitical tensions, stability in the exchange rate, and recent significant increases in policy rates should help alleviate domestic inflationary pressures in the coming months." 

'US tariffs on Chinese exports may lead to sourcing diversification'

The Bangladesh Bank said the recent uptick in remittances and export figures indicates a more favourable outlook for the external sector. 

Future export potentials may arise from the "China plus one" strategy and the imposition of additional tariffs by the US on Chinese exports may lead to diversification of sourcing by the US companies leading to higher Bangladeshi readymade garment (RMG) exports, it said.

"Moreover, the anticipated disbursement of additional concessional loans, and technical assistance from foreign governments as well as international financial institutions will likely enhance domestic financial stability and support institutional restructuring, thereby reinforcing domestic macroeconomic stability," it said.

'Stressed banks under close surveillance'

The banking sector continues to face numerous challenges, including rising non-performing loans (NPLs), tighter liquidity conditions, and slowing deposit and credit growth, the central bank said. 

The central bank has set up task forces dedicated to managing and implementing banking sector reforms, it said.

"The stressed banks are under close surveillance, and future actions will be determined based on the outcomes and consistent with the forthcoming Bank Resolution Act," it added.