Bangladesh Bank is keeping the repo rate at 10% for now but may lower interest rates in the coming months if inflation falls below 7%. Current inflation is around 8.5%, with a long-term target of 3%. Interest rates are already showing a slight decline, with Treasury bill and bond yields dropping from 12% to 10%, and the overnight rate cut to 8%. The central bank is pursuing a coordinated strategy to control inflation and ensure economic stability.
Details are given below,
Bangladesh may be on its way to lower interest rates, but only if inflation continues to fall. In a press briefing on Thursday, Bangladesh Bank Governor Dr. Ahsan H. Mansur gave the clearest signal yet: “For now, the repo rate will stay at 10%, but we’re hopeful that within the next few months, we can start lowering interest rates if inflation drops below 7%.”
Dr. Mansur made this statement while unveiling the monetary policy for the first half of fiscal year 2025–26 at the central bank’s headquarters in Dhaka. The event was attended by deputy governors, key policymakers, economists, and senior officials of the bank.
“We’ve had some success in bringing inflation down. It currently sits around 8.5%, but that’s still far from our goal,” the governor said, expressing his ambition to push inflation down to as low as 3%. “I won’t be satisfied until we reach that.”
Read more: Bangladesh Sees Record $2.37 Billion Remittance in July
Why Interest Rates Are Still High
The governor explained the reasoning behind the current high interest rates: “We initially focused on reducing demand, which required increasing the interest rate. This helped limit bank lending and shrink liquidity. At the same time, the government also implemented a contractionary budget.”
On the supply side, despite last year’s dollar crisis, the government ensured uninterrupted imports of key essentials like electricity, fertilizer, and LNG. “We fixed the dollar exchange rate at Tk 122 initially, then moved to a market-based approach. Many feared the rate would skyrocket to Tk 160–170, but it didn’t,” Dr. Mansur added.
When Can Interest Rates Go Down?
The governor made it clear that policy interest rates (like the repo rate) can only be reduced when inflation stays 3 percentage points below the repo rate. With the repo rate currently at 10%, inflation needs to fall to 7% or below to trigger a policy review.
He noted some positive early signs:
- Treasury bill and bond rates have already dropped from 12% to 10%
- The overnight rate has been lowered from 8.5% to 8%, a move designed to discourage banks from simply parking money at Bangladesh Bank for profit
“Banks shouldn’t earn profits by leaving money idle. If they want returns, they should invest,” said Dr. Mansur.
A Coordinated Strategy for Stability
Bangladesh Bank is now working with a more structured and coordinated approach to bring economic stability and curb inflation, the governor emphasized.
While the country still faces inflationary pressure and some currency volatility, the central bank’s leadership seems determined to act with patience and precision. For now, interest rates stay firm but relief may be just a few months away, if the macroeconomic conditions allow it.
Source: Daily Jugantor
