Bangladesh Bank (BB) is set to unveil its new monetary policy for the next six months in February, foregoing an increase in the policy rate amid concerns over the rising cost of production and sluggish private sector credit growth, officials said.
They said the central bank’s monetary policy advisory board has recommended maintaining the current policy interest rate, citing the adverse effects of previous rate hikes on private credit flow.
The board has suggested that private sector credit growth be maintained within a range of 8.5 to 10%.
A senior official at the central bank’s monetary policy department noted that the central bank had raised the policy interest rate three times under the interim government, leading to a decline in private credit flow.
“Further increases in interest rates could negatively impact employment and the manufacturing industry. Hence, it is advisable not to raise the policy rate further,” the official said.
According to the central bank data, the policy interest rate was raised five times in 2024, climbing from 7.75% to 10%.
Following the political transition, BB increased the rate by 0.5 percentage points to 9% on 27 August, then to 9.5% on 25 September, and again to 10% on 27 October.
Consequently, lending interest rates have also risen. In May, the lending rate stood at 11.28%, increasing to 11.52% in June and 11.57% in August.
Rubayet Ferdous, a garment entrepreneur from Ashulia, expressed concern over the high borrowing costs.
“Many entrepreneurs are struggling due to increased interest rates, which have escalated the cost of funds. Despite the need for additional financing, many businesses refrain from taking bank loans because of the high costs,” he told UNB.
Ferdous highlighted that his firm had planned to commence operations of a new production unit but has been unable to proceed due to the prohibitive cost of funds.
“Export-oriented industries are not seeing increased rates from buyers, making it difficult to absorb higher borrowing costs. If the central bank ensures lower-cost funding, many halted projects could resume operations,” he added.
Dr Fahmida Khatun, Executive Director of the Centre for Policy Dialogue (CPD), acknowledged that the central bank had previously kept interest rates low to benefit large borrowers.
“Given the current economic conditions and the need to control inflation, the recent hikes in policy interest rates were justified. However, the central bank must now stabilise lending rates for long-term sustainability,” she said.
Dr Mustafa K Mujeri, former chief economist of the central bank, said that while the central bank’s policies are designed for the broader economic interest, they are not always popular.
“Now is the time for smart and stable policymaking that considers various domestic economic factors. From this perspective, we do not recommend further policy rate increases,” he said.
But Bangladesh Bank Governor Ahsan H Mansur last Thursday asserted that traders need not worry about higher loan interest rates.
Reacting to this, Selim Raihan, professor of Economics at Dhaka University, criticised the governor’s stance on social media.
“This statement does not align with the real economic situation. Although raising interest rates aims to curb inflation, it also introduces new challenges for businesses,” he wrote in a Facebook post.
