BB keeps policy rate unchanged at 10%
Bangladesh Bank Governor Ahsan H Mansur announced the last monetary policy under the interim government at a press conference today
Highlights
- Policy rate kept unchanged at 10%, maintaining a tight monetary stance
- Bangladesh's economy moving from instability toward macroeconomic stabilisation
- Inflation easing but still elevated, making rate cuts premature
- Government's excess borrowing putting pressure on money market and crowding out private credit
- SDF rate cut to 7.5% to encourage banks to invest in the money market
- Forex reserves and deposits improving, while banks focus on balance-sheet repair amid high NPLs
The Bangladesh Bank has unveiled a monetary policy for the second half of FY26, continuing a tight monetary stance, keeping the policy rate at 10%.
Bangladesh Bank Governor Ahsan H Mansur unveiled the last monetary policy under the interim government at a press conference held today (9 February) at its headquarters.
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The Bangladesh economy is now at a critical juncture, transitioning from a possible economic meltdown toward substantial macroeconomic stabilisation and laying the foundations for renewed growth, said the monetary policy statement.
Although inflationary pressures are subsiding, they still remain elevated and uneven, suggesting that a premature policy rate reduction would be imprudent, according to the statement.
Govt's excess borrowing put money market under pressure
The Bangladesh Bank Governor Ahsan H Mansur said excessive borrowing of the government put money market under pressure hindering private sector growth.
The government has been borrowing due to low revenue and high expenditure, putting upward pressure on interest rates.
In this situation it will be premature to reduce policy rate, he said.
However, central bank reduced Standing Deposit Faciloty (SDF) rate to 7.5% from 8% to encourage banks to invest money in money market instead of parking money with Bangladesh Bank.
In its Monetary Policy Statement (MPS), BB said the economy is at a critical transition point—from the risk of economic instability toward macroeconomic stabilization—though inflationary pressures, while easing, remain elevated and uneven.
Given this backdrop, the central bank said any premature reduction in the policy rate would be imprudent. Maintaining the 10% policy rate has helped shift the real policy rate into positive territory, strengthening price stability and policy credibility.
However, BB acknowledged that tight monetary conditions, elevated public-sector borrowing, and weak investor confidence have pushed private-sector credit growth to historically low levels, with government borrowing creating crowding-out effects despite exchange-rate stability.
The central bank noted that liquidity stress in 2024—driven largely by capital flight amid banking sector irregularities—has eased. Deposit growth rebounded from below 7% in August 2024 to around 11% by December 2025, though recovery has been uneven as depositors shifted funds toward stronger banks.
Official non-performing loans (NPLs) exceeded 36% by September 2025, a figure BB said reflects stricter asset classification and improved governance rather than a sudden deterioration in asset quality. Banks are therefore prioritising balance-sheet repair over aggressive credit expansion.
On the external front, BB said foreign exchange reserves rose from $25.6 billion in August 2024 to $33.2 billion in December 2025, supported by strong remittance inflows, moderate imports, and the resumption of regular foreign debt servicing.
Globally, economic growth is expected to slow slightly to 3.1% in 2026, while inflation is projected to ease. Domestically, inflation remains above BB's 7% target, driven largely by supply-side constraints and structural bottlenecks rather than monetary factors.
The central bank said the objectives of the current MPS are to anchor inflation expectations, bring inflation toward target levels, address elevated NPLs, and restore public confidence in the banking system through improved governance and coordination with fiscal authorities.
