Policy rate cut may be possible in January, Bangladesh Bank tells IMF

The Bangladesh Bank has indicated that it may adjust the policy rate in the upcoming monetary policy, expected in January 2026, as inflation may come down by that period.

Central bank officials disclosed this during a meeting with the visiting International Monetary Fund (IMF) Fifth Review Mission today (30 October).

"We informed the IMF that there could be some adjustment to the policy rate in the new monetary policy to be announced in January," a Bangladesh Bank official who attended the meeting told TBS.

The discussions, chaired by Deputy Governor Habibur Rahman, were attended by two other deputy governors and senior officials from various departments. The IMF team was led by Chris Papageorgiou.

During the meeting, the IMF inquired about when the central bank plans to reduce its policy rate – the rate at which it lends to commercial banks for short-term liquidity support. Central bank officials clarified that a reduction will only be considered once inflation is fully under control.

At present, the policy rate stands at 10%, while lending rates for borrowers hover at 13-14%.

IMF satisfied with Bangladesh’s reserves and inflation, but concerned over tax-GDP ratio

The central bank official said, "The IMF asked when we plan to lower the policy rate. We responded that inflation has shown signs of easing and is expected to decline further by January, when the Boro rice harvest season begins."

Dollar purchase concerns

In recent months, the central bank has purchased over $2 billion from commercial banks through auction operations – a move that drew questions from the IMF.

"The IMF pointed out that while the central bank is maintaining a high policy rate, it is simultaneously injecting liquidity into the market by purchasing dollars," a Bangladesh Bank director told this newspaper.

"In response, we explained that the central bank intervened because banks were holding excess dollars and the exchange rate risked depreciating. The purchases have now been halted," he added.

Banking sector health

The IMF also sought clarification on the recent spike in non-performing loans (NPLs). Bangladesh Bank officials said the apparent rise reflected greater transparency rather than a deterioration in loan quality.

"Many bad loans were previously underreported. We have now incorporated those figures in official reporting," said an official.

The IMF expressed appreciation for the central bank's move to disclose previously hidden NPL data.

Policy rate cut may be possible in January, Bangladesh Bank tells IMF

The IMF team also reviewed the financial conditions of state-owned banks, the liquidity situation in the banking sector, recapitalisation measures, foreign currency shortages, and steps taken to address provisioning shortfalls. In addition, they inquired about Bangladesh's policies on climate finance, sustainable investment, and the green economy.

Shahriar Siddiqui, assistant spokesperson of the Bangladesh Bank, said that the 5th Review Mission is a regular visit aimed at assessing progress on loan condition implementation, with a specific focus on inflation control measures, interest rates, liquidity support, reserve utilisation, and NPL reduction initiatives.

Earlier on Wednesday, the IMF team expressed satisfaction with Bangladesh's performance in controlling inflation and maintaining foreign currency reserves, but remained unconvinced regarding the country's tax-GDP ratio, citing a shortfall in revenue collection targets.