Govt projects gradual recovery of private sector credit growth to 10%
The country's private sector credit growth fell to a historic low of 4.7% in April, when point-to-point inflation hit over 9% in May, central bank data shows.
The medium-term macroeconomic framework underpinning the FY27 budget projects a gradual recovery in private-sector credit growth to around 9%-10%, alongside a decline in inflation to approximately 6%.
Finance Minister Amir Khosru Mahmud Chowdhury is presenting the National Budget for FY2026-27 in the Parliament this afternoon (11 June), outlining the government's policy priorities under a proposed Tk9.38 lakh crore outlay.
The policy interest rate is expected to remain at 10% in the short term, reflecting uncertainty stemming from instability in the Middle East and the need to keep inflation expectations under control.
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It will then be eased gradually to lower borrowing costs and support a recovery in private investment.
The country's private sector credit growth fell to a historic low of 4.7% in April this year when point-to-point inflation hit over 9% in May, central bank data shows.
The budget document notes that restoring private-sector credit growth will require more than lower policy rates, as structural weaknesses in the banking sector continue to limit the effectiveness of monetary policy transmission.
Elevated non-performing loans, weak capital buffers and governance shortcomings have reduced banks' willingness and capacity to extend fresh credit while contributing to wider lending spreads.
Addressing these vulnerabilities remains essential for effective monetary easing and improved credit intermediation, the document says.
To that end, Bangladesh Bank has launched a broad financial-sector reform programme supported by specialised task forces, the budget document mentions.
The reform agenda includes:
- Asset quality reviews of vulnerable financial institutions;
- Time-bound capital restoration plans for undercapitalised banks;
- Stronger supervision, risk management and governance frameworks;
- Enhanced legal and institutional mechanisms for asset recovery; and
- Development of bank resolution frameworks, including provisions for mergers or acquisitions of non-viable institutions.
