Central Bank Signals Further Monetary Tightening Amid Persistent Inflation

Summary:
The Bangladesh Bank has indicated further tightening of monetary policy to combat persistent inflation, as detailed in its recent fiscal year-end review. Despite global declines in inflation, Bangladesh’s annual inflation hit 9.73% in 2023-24, the highest since 2011-12, largely due to domestic currency depreciation and the spillover effects of global commodity price increases. The central bank plans to maintain a restrictive monetary stance until inflation is sustainably reduced to the 7.5% target. The IMF recommends an additional 50 basis point policy rate hike by December 2023. The central bank’s efforts include lifting policy rates, adopting a market-driven interest rate system, and introducing a more flexible exchange rate policy. The upcoming monetary policy for the first half of FY25 will focus on inflation control and achieving GDP growth, amidst challenges like high bank borrowing targets and liquidity shortages in banks.