How effective will quarterly monetary policy reviews be 

For the first time, the Bangladesh Bank has introduced a quarterly Monetary Policy Statement (MPS). This  is a positive step as the move to review the monetary policy stance every three months instead of every six months comes at a time when inflation, investment, credit flows, and global conditions are changing rapidly. 

In its first quarterly statement, the central bank has kept the policy interest rate unchanged at 9.5% for the October–December 2026 period. The aim of this change is to make monetary policy more timely and responsive by taking new information and emerging risks into account. 

The first quarterly statement says the main objective of the initiative is to regularly review domestic and global economic conditions and, when necessary, adjust the monetary policy stance in a timely manner. 

The decision is important in the sense that, according to the Bangladesh Bureau of Statistics (BBS), inflation declined somewhat, standing at 8.32%  in July and 8.26%  in August, but supply-side and cost-related risks remain. 

High fuel and fertiliser prices, the conflict in the Middle East, and the potential impact of a new wage structure could push inflation up again. At the same time, weak industrial production, slower private-sector credit growth, and a slowdown in investment are putting pressure on economic activity.  

Bangladesh Bank expects that regular reviews will help strike a balance between maintaining price stability and supporting economic activity. The Monetary Policy Committee plans to closely monitor domestic and global economic and financial developments and adjust its policy stance when necessary.

The statement also mentions incentive and refinancing programmes to support growth and help contain inflation. However, it does not specify how much the quarterly reviews are expected to reduce or increase inflation or credit growth. 

In reality, the outcome will depend on the availability of reliable data, timely policy decisions and complementary measures, including reforms in the banking sector.

The central bank expects private-sector credit growth to pick up in the October–December quarter as liquidity conditions improve. However, it acknowledged that interest rates alone will not be enough to revive economic growth.

To ensure that credit reaches productive sectors, it is essential to address weaknesses in the banking sector, reduce credit risks and tackle constraints related to power, energy and infrastructure.

Against this backdrop, recent trends in Bangladesh's economy show that while inflation has eased somewhat, it is still far from a comfortable level. Weaknesses also persist in lending and investment.

Alongside monetary policy, banking-sector reforms and coordinated government action on supply-side and fiscal policies will be essential to contain inflation, restore investor confidence and boost the flow of credit.

One advantage of reviewing monetary policy every three months is that the central bank will not have to wait too long to respond to changes in the economy. But changes in the policy interest rate take time to feed through to lending and investment. Despite a modest cut in the policy rate, private-sector credit growth stood at just 4.75% in August, significantly lower than in previous years.

The quarterly monetary policy statement would be more useful for businesses and investors if it clearly explained the data underpinning each policy decision and the risks that could prompt a change in the policy stance. Greater clarity on these issues would help private-sector decision-makers plan with more confidence.

Improving the quality of economic forecasts is also important. Alongside publishing a specific inflation forecast, Bangladesh Bank could explain how changes in fuel prices, the exchange rate, food supply or government spending could affect the outlook.

If there is a gap between an earlier forecast and the actual outcome, the reasons should be explained in the following statement. This would help markets and businesses distinguish between changes driven by new information and those that signal a shift in the monetary policy stance.

Removing the barriers to credit flow is equally important. High levels of non-performing loans and weak governance in banks, borrower risks and a lack of investor confidence could prevent credit from reaching productive businesses even if the policy rate is lowered.

Bangladesh Bank itself has highlighted the need to restructure banks, restore their capital, strengthen governance and improve credit discipline.

Finally, monetary policy needs to be coordinated with the government's fiscal and supply-side policies. Raising interest rates can help curb overall demand, but it cannot directly stop price increases caused by shortages of food or fuel.

Other measures are equally important, including removing bottlenecks in food imports and distribution, closely monitoring supply conditions, ensuring adequate fuel supplies and providing targeted support to low-income households.

Fiscal and monetary policies also need to work in tandem to ensure that government borrowing and the budget deficit do not undermine the objectives of monetary policy.

The quarterly monetary policy statement has shortened the policy review cycle, giving the central bank more scope to respond quickly to changes in the economy. Its effectiveness, however, will depend on the timeliness of data, the credibility of forecasts and the transparency of policy decisions.

With regular reviews, the approach should ideally make it easier to see how new information shapes policy decisions and the reasoning behind them. Alongside monetary policy, banking-sector reforms and coordinated government action on supply-side and fiscal policies will be essential to contain inflation, restore investor confidence and boost the flow of credit.

The author is a Distinguished Fellow at the Centre for Policy Dialogue (CPD).