Inflation easing, but tight monetary policy denting credit growth, investment: Govt report

Highlights

• Deposits rising due to restored public confidence, lower savings certificate rates, and increased e-money and agent banking use
• Inflation edged up to 8.36% in September from 8.29% in August
• Forex reserves improved to $31.4 billion in September
• Exports dipped to $3.63 billion in September
• Taka stable between Tk121–122 per dollar, reflecting prudent central bank management
• Rice prices fell in September

Although inflationary pressures have begun to ease, a continued tight monetary policy is dampening credit growth and discouraging new investments, according to the Economic Update and Outlook (October 2025) published today (21 October) by the General Economics Division (GED) of the Planning Commission.

The report presents a note of cautious optimism for the coming months, suggesting that while key indicators such as reserves, remittances and deposits have improved, the economy continues to face challenges from high borrowing costs and subdued private-sector activity.

The GED report attributes the recent growth in bank deposits to improved public confidence following a series of government and central bank reforms. 

It notes that lowering interest rates on savings certificates has encouraged savers to return to the banking system, while the expansion of e-money and agent banking has also helped attract deposits.

Strong remittance inflows and efforts to channel government cash transfers through banks also contributed to the increase in deposits, the report added.

Overall inflation edged up slightly to 8.36% in September, compared with 8.29% in August, with both food and non-food inflation registering modest increases of 0.04 and 0.08 percentage points respectively. Rice remains the dominant contributor to food inflation, though its share fell from 48.37% in August to 45% in September.

Inflation has remained persistently high since August 2022, averaging 9.56% over the past 38 months, the GED report noted. That month marked a major turning point, when the government increased fuel prices by more than 50% in response to the Russia-Ukraine war, triggering a sudden two-percentage-point jump in inflation.

Private sector credit growth dropped to a historic low of 6.35%, well below the Bangladesh Bank's target, reflecting weak business confidence amid high interest rates and political uncertainty. Public sector borrowing surged, with net government credit rising by 16.59% in August, largely to cover fiscal deficits stemming from sluggish revenue collection.

Meanwhile, revenue collection has gathered momentum, with the National Board of Revenue (NBR) collecting Tk54,423 crore during July-August 2025 – a 21% rise from the same period last year.

Despite the strong growth, the figure fell short of internal targets as subdued import activity weighed on customs revenue, the report stated.

VAT posted the strongest performance, increasing by 33.8%, followed by a 24% rise in income tax. Customs revenue, however, declined by 4.5% year-on-year.

Steady growth in foreign exchange reserves

According to the report, Bangladesh's foreign exchange reserves showed steady improvement in the first quarter of FY2025-26, indicating stronger external stability and renewed investor confidence.

Gross reserves rose from $25.5 billion in March 2025 to $31.4 billion in September, while BPM6-compliant reserves climbed from $20.4 billion to $26.6 billion during the same period. The rise was supported by higher export earnings, stable remittance inflows, and moderated import payments.

The report said central bank measures have helped maintain exchange rate stability and supported confidence in the external sector.

Exports dip after months of strong growth

Following several months of strong export performance, earnings fell to $3.63 billion in September, down from $3.91 billion in August and $4.77 billion in July.

The decline was largely driven by reduced shipments in the RMG sector, which still accounts for more than 80% of total exports. Non-RMG sectors such as jute goods, leather, and light engineering, however, maintained steady growth, helping cushion the overall downturn.

Despite the monthly drop, total export earnings for July-September 2025 remained higher than in the same period last year, reflecting improved competitiveness and more efficient logistics.

Taka remains stable against the US dollar

The exchange rate of the taka remained largely stable during the third quarter of 2025, trading between Tk121 and Tk122 per US dollar.

The Real Effective Exchange Rate (REER) increased slightly from 121.2 in June to 127.2 in September, indicating a modest real appreciation of the currency. 

Analysts attributed this stability to productivity gains, moderate inflation differentials, and prudent management of the foreign exchange market by the Bangladesh Bank.

Rice prices decline

Rice prices declined in September by about one percentage point from August levels, though inflation in coarse and fine rice varieties remained relatively high at around 15%.

To ensure food supply stability, the government on 8 October approved the import of 50,000 tonnes of rice from India and 220,000 tonnes of wheat from the United States, with plans to import a further 400,000 tonnes of rice by November to maintain adequate reserves until the new paddy harvest in December, the report said.

The tendering period for international procurement has also been shortened from 27 days to 15 days to accelerate imports. 

As of 15 October, government-held food grain stocks stood at 1.55 million tonnes, while food distribution during the current fiscal year up to 2 October rose 24% year-on-year to 816,343 tonnes.

According to the report, these measures are expected to help stabilise food prices further in the coming months. Rice's contribution to overall inflation fell to 45% in September, down from 48.37% in August, with fish, meat, fruits and edible oils making up most of the remainder.

Price declines in root crops, vegetables, potatoes and onions also helped ease food inflationary pressures, the GED report added.