Cenbank to inject taka via dollar purchases: Governor

The Bangladesh Bank will inject liquidity into the money market by buying US dollars instead of printing money, Governor Ahsan H Mansur said today (31 July).

"No more printing money to increase liquidity. We will inject taka in a systemic way by purchasing dollars," he said while announcing the monetary policy for the first half of FY2025-26 at a press conference at the central bank headquarters.

The central bank will maintain its tight monetary stance for the period, keeping the policy rate unchanged at 10%, aiming to bring inflation down to 3%-5%.

Describing it as a "contractionary policy stance", the governor said the central bank would keep monetary conditions tight until inflation fell to the targeted level and the real interest rate turned positive.

"We will certainly be able to bring inflation down to 3%-5% if there is no major deficit, flood, or other external shock," he said, adding that interest rates would fall to single digits once inflation eased.

He expects rates to drop below 10% by December if price stability continues. Inflation has already begun to ease, falling to 8.48% in June, with a downward trend projected to continue.

The governor said the Bangladesh Bank may further reduce the reverse repo rate to encourage banks to lend to the private sector. He noted that interest rates on treasury bills and bonds have already dropped below 10% from 12%, showing visible improvement in the money market.

He also pointed out that although overall inflation is easing, rice prices are rising. However, he said the price could be stabilised through imports, as the central bank has enough reserves to supply dollars.

Challenges, credit concerns

The central bank warned that the economy faces multiple headwinds in H1 FY26. Domestically, persistent inflation, sluggish GDP growth, weak private investment, high non-performing loans, and uncertainty ahead of the national election remain concerns. Externally, tariff shocks could hurt exports.

Private sector credit growth has been cut to 8% for FY26, down from 9.8% in FY25. Actual growth was only 6.4% in June 2025, the lowest in 22 years. Public sector credit growth is projected at 18.1%, slightly higher than last year.

The Dhaka Chamber of Commerce and Industry (DCCI) expressed concern that the continued contractionary stance may discourage private investment. In a statement, the DCCI called for a "more flexible, inclusive, and sector-responsive monetary policy, aligned with fiscal discipline" to spur confidence and investment.

However, the governor in the press conference said the central bank's role is to stabilise the market and improve loanable funds, not directly increase investment. 

He noted that Bangladesh still achieved 4% GDP growth during the recent crisis, which he described as "strong compared to Sri Lanka and Pakistan," projecting 5.5%-6% growth by the end of FY26.

Syed Mahbubur Rahman, managing director and CEO of Mutual Trust Bank, said the new monetary policy was as expected as the governor had repeatedly stressed that policy rates would not be lowered until inflation was under control.

He said the sharply reduced private sector credit growth target was realistic, reflecting the economy's current position. However, he warned that such low credit growth makes it difficult to run an economy like Bangladesh's. Limited credit growth, he explained, curbs job creation and weakens revenue collection, which could worsen the budget deficit.

Selim RF Hussain, former chairman of the Association of Bankers Bangladesh and former CEO of BRAC Bank, said Bangladesh's macroeconomic stability had improved compared to a year ago, thanks to steps such as clearing banks' overdue payments and stabilising the foreign exchange market.

He said, "The new monetary policy is contractionary, and this stance is appropriate under current conditions. We may need to continue it for another six to seven months because, while inflation has eased slightly, it must come down further. Overall, the economy remains somewhat depressed."

He added that political uncertainty ahead of the national election is holding back investment, but confidence should return once the polls are over. 

Khondaker Golam Moazzem, research director at the Centre for Policy Dialogue, said the central bank's conservative approach aligned with the interim government's budget priorities.

He noted that the current investment environment is far from ideal due to weak foreign debt flows, energy shortages, and fragile law and order. In that context, the reduced private sector credit growth projection is reasonable.

He also warned that rising import costs, especially if US tariffs remain in place, will weigh on the economy. Moazzem said that political clarity will be crucial for both domestic and foreign investors. 

"The national election date is still unannounced. Once it is, interest in new investments from both local and foreign investors will increase. Political stability is key for long-term ventures, and a new government could provide five years of certainty, improving the investment climate significantly," he added.

Liquidity thru dollar purchases

Bangladesh Bank has already achieved exchange rate stability, which will boost dollar availability, Governor Mansur said.

He noted that the country's current account balance has moved into surplus and, if the trend continues, reserves will grow automatically. "We will keep buying dollars to build reserves but will not dictate the price."

The central bank has already purchased $500 million from banks, providing them with local currency liquidity, he added.

Mansur said net foreign assets, which were negative 17.4% in June 2024 and negative 15.7% in December 2024, turned positive at 4.5% in June 2025. They are projected to grow by 28.3% by December.

"This growth in net foreign assets will become a key source of liquidity for the private sector," the governor said.

Bank merger

The governor at the press conference said the government will soon announce the bank merger plan, under which it will provide funds to support the mergers. 

He added that the government will recover its investment with profit.

Citing the 2008 US financial crisis, he said, "The US government invested heavily in banks and insurance companies, which later returned to private hands profitably. Similarly, our government is acting in the public interest."

He noted that some banks had improved after board restructuring last year, but those failing to recover will now face merger initiatives. The first phase of mergers is expected to be completed by September, with the remaining banks to follow.

"This process will increase public confidence. Our goal is to successfully revive these banks through the merger initiative," the governor said.