BB raises policy rate by 25 basis points to curb inflation

The Bangladesh Bank (BB) has increased the policy rate by 25 basis points to 6% in a move to curb inflation by making money more expensive for banks.

The central bank unveiled its new monetary policy for the second half of the current fiscal year at a press conference held in its headquarters Sunday (15 January). 

The Bangladesh Bank said it would pursue a cautiously accommodative policy stance in the second half of the current fiscal year to contain inflationary and exchange rate pressures.

Reverse repo rate was also increased by 25 basis points to 4.25%. 

In the new policy, private sector credit growth was kept unchanged to 14.1% while the public credit growth ceiling increased to 37.7% for June from the previous ceiling of 36%.

This is for the fourth straight time that the central bank increased interest rate as inflation remains high after surging to 9.5% in September. 

The inflation target has been reset at 7.5% for the current fiscal year, from the earlier target of 5.6% set in June 2022. 

Lending rate cap has also been relaxed for consumer loans, allowing banks to hike the consumer level interest rate by up to 3 percentage points. 

The central bank has also removed the deposit floor rate "considering the current market conditions."  

The central bank termed the country's near-term economic outlook as quite stable, that it said critically depends on three external issues including the length and intensity of the Russia-Ukraine war, the spree of interest hikes by the Fed, and the re-emergence of the Covid-19 situation and its severity in China.

The improvements in these challenges will expedite Bangladesh's future economic gains, noted the Bangladesh Bank.

However, in case of any adverse consequences of the above external issues, the Bangladesh economy has enough resilience to remain insulated in its current condition, it added.