Bangladesh Bank has kept its policy rate unchanged at 10 per cent, reinforcing a tight monetary stance as the country has been grappling with ‘sticky’ inflation, remaining above 8 per cent.

BB governor Ahsan H Mansur announced the monetary policy for the second half (January-June) of the current fiscal year at the central bank headquarter in Dhaka on Monday.

 He said BB would maintain a contractionary stance until inflation shows a durable decline, warning that premature easing could reverse recent macroeconomic gains.

BB in the MPS said ‘There are also several near-term inflation risks, including the upcoming national election, the approaching holy month of Ramadan, and the possible announcement of a new national pay scale. These elements typically stimulate demand and consumer spending, underscoring the need for a careful, balanced monetary policy.’

It said that inflation remained ‘sticky’ due to structural weaknesses in domestic markets, limiting the impact of monetary tightening.

Prices rise quickly when global costs or supply shocks hit but rarely fall when pressures ease, as fragmented trading networks and cash-based intermediaries remain insulated from interest rate hikes.

The central bank said inflation in Bangladesh is largely supply-driven and cannot be controlled by monetary policy alone, stressing the need for timely administrative action on imports, tariffs and market oversight.

The policy left the repo rate unchanged for the fourth consecutive time since October 2024, when Bangladesh Bank raised it to 10 per cent following a series of hikes to curb double-digit inflation.

At the same time, the central bank lowered the Standing Deposit Facility rate to 7.5 per cent from 8 per cent, aiming to discourage banks from parking excess funds with the central bank and push liquidity into the money market.

He said fiscal decisions must align with macroeconomic stability objectives.

BB in MPS said that political developments, soft industrial output, persistent inflation, and global headwinds may undermine the growth prospects.

Inflation, which peaked at 11.38 per cent in November 2024, eased in the following months but rose again for three consecutive months, reaching 8.58 per cent in January this year, mainly due to the unique structural rigidities of the local market.

Mansur said that inflation could not be contained through monetary policy alone and required supply-chain discipline and broader macroeconomic stability.

Under the revised policy, Bangladesh Bank slightly raised its private sector credit growth projection to 8.5 per cent by June, from 8 per cent earlier.

Actual private sector credit growth stood at only 6.1 per cent in December, reflecting weak business confidence, high borrowing costs and persistent stress in the banking sector.

The central bank set government sector credit growth at 21.6 per cent by June.

In the previous policy, it had projected 20.5 per cent growth by December, but actual borrowing surged to 28.9 per cent, adding pressure to the money market.

Broad money growth is now projected at 11.5 per cent by June, up from 7.8 per cent in December, partly due to Bangladesh Bank’s purchase of about $4.3 billion from the foreign exchange market, which injected nearly Tk 50,000 crore into the economy.

BB said weak governance, capital shortfalls, and high NPLs characterized the banking sector, undermining its role in supporting the broader economy.

Mansur said that reforms were a continuous process and claimed he enjoyed full operational independence under the interim government, adding that he faced no pressure while discharging his duties.

However, he expressed dissatisfaction that key legal reforms could not be enacted, including proposed amendments to the Bangladesh Bank Order, the Bank Company Act and the Artha Rin Adalat Act.

‘These laws should have been enacted during this period. While a lot has been achieved, the absence of these reforms remains a disappointment,’ he said, adding that the issues would be placed before the next government.

He warned that failure to strengthen the legal framework could allow past abuses in the banking sector to resurface.

Deputy governor Habibur Rahman said that the central bank revised the private sector credit outlook slightly upward in anticipation of improved loan demand once political stability returns.

He also said foreign exchange reserves remained well above International Monetary Fund targets and all quantitative benchmarks had been met.