Dbarta24 Business Desk — In a sudden shift in monetary strategy, Bangladesh Bank has lowered its primary policy rate by 50 basis points to 9.5%, aiming to stimulate private sector credit and economic activity despite persistent headline inflation.
The decision was finalized during a Monetary Policy Committee (MPC) meeting chaired by the central bank Governor, Md. Mostakur Rahman. According to an official press release, the new rate structure takes effect this coming Sunday.
+------------------------------------+----------------+---------------+
| Policy Rate / Facility | Previous Rate | Revised Rate |
+------------------------------------+----------------+---------------+
| Policy Rate (Repo Rate) | 10.00% | 9.50% |
| Standing Lending Facility (SLF) | 11.50% | 11.00% |
| Standing Deposit Facility (SDF) | 7.50% | 7.50% (Unch.) |
+------------------------------------+----------------+---------------+
Context and Policy Shift
The policy rate (repo rate) had remained frozen at 10% since October 2024 under the former administration of Governor Dr. Ahsan H. Mansur. Mansur had repeatedly emphasized that policy rates should not be reduced until average inflation dropped below 7%.
In a recent interview, the former governor noted he would have considered raising rates further to 12% to tame price spikes under current conditions.
Following the political transition and the appointment of Md. Mostakur Rahman as Governor in February, the central bank initially maintained a contractionary posture in its July–December monetary policy statement, citing global volatility and inflationary trends. However, less than a month after that announcement, the central bank reversed course.
Economic Backdrop & Key Analysis
The rate cut arrives at a challenging juncture for Bangladesh’s macroeconomy:
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Rising Inflation: Average headline inflation edged up to 8.68% in June, up from 8.63% in May and 8.59% in April. The government’s fiscal year target to cap inflation at 7.50% remains under significant pressure.
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Sluggish Credit Growth: Private sector credit growth stood at just 4.98% as of May—far below the previous target of 8.50%. Consequently, Bangladesh Bank has adjusted its projected private sector credit growth downward to 6.80% for the current policy cycle.
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Economic Stimulus: To directly injection momentum into the market, the central bank announced a BDT 60,000 crore stimulus package designed to facilitate low-cost lending.
Standard central banking theory dictates holding interest rates high during periods of elevated inflation to curb demand. However, the central bank highlighted that broader macroeconomic factors outweighed the immediate inflation risks in their deliberation.
“The Monetary Policy Committee took the decision to reduce the policy rate after a detailed discussion on domestic and global inflation trends, local investment levels, private sector credit flow, employment generation, the decelerating economic growth rate, and the balance of payments situation.”
— Official Press Release, Bangladesh Bank
Outlook
The MPC meeting was attended by key central bank officials and prominent economists, including Deputy Governor Dr. Md. Habibur Rahman, Dr. Mustafa Kamal Mujeri, BIDS Director General Dr. A.K. Enamul Haque, Chairman of the Department of Economics at Dhaka University Dr. Firdousi Nahar, Chief Economist Dr. Mohammed Akhtar Hossain, and Executive Director Dr. Imam Abu Sayed.
By shifting toward monetary easing, the central bank is prioritizing private sector credit recovery, employment creation, and industrial investment over aggressive inflation control.
How the market balances this influx of liquidity against rising consumer prices will be the critical test for the central bank in the months ahead.