Bangladesh Bank will unveil its new monetary policy by the end of July, signalling a shift from its current contractionary stance in a bid to spur economic growth while still reining in inflation.
Sources indicate the central bank is preparing modest adjustments to the policy interest rate under International Monetary Fund (IMF) guidance.
Business leaders are, however, pinning their hopes on a more investment-friendly regime of lower lending rates and continued political stability.
Monetary policy is the primary lever for steering a nation’s economic course, fostering development, taming inflation and regulating money supply over a given period.
For the first half of the current fiscal year, Bangladesh Bank is fine-tuning its strategy to strike a delicate balance between curbing inflation and reviving private investment.
Business leaders have long argued that the prevailing tight policy has dampened investment, a situation worsened by recent political uncertainty.
DCCI President Taskin Ahmed said, "We hope the upcoming monetary policy will be more business-friendly and geared towards increasing credit flow. We are looking for a more lenient monetary policy, particularly hoping for a reduction in the interest rates that have risen significantly.”
To contain soaring consumer prices, the central bank previously raised its policy rate from 8.5 per cent to 10 per cent. Although the move helped ease inflation, it also choked off investment momentum.
Bangladesh Bank injects Tk 52,500 crore into struggling banks
Acknowledging this, policymakers now appear inclined to soften their approach.
Bangladesh Bank spokesperson Arif Hossain Khan said, "If we continue with a contractionary policy, it won't be investment-friendly. We have already achieved two of our three key factors, and while we haven't fully controlled inflation, we have managed to reduce it somewhat. Considering this, this time around, we might see a slightly different approach; it may not be as contractionary.”
Economists warn that inflation cannot be curbed solely through monetary tightening.
"Inflation is not solely caused by the money supply. Bangladesh's inflation, for instance, won't just come down if Bangladesh Bank increases a policy rate. To control inflation, we also need to manage the supply chain effectively," said Masrur Reaz, Chairman of the Policy Exchange Bangladesh, a research organisation.
Analysts agree that bolstering the supply chain is pivotal though implementing such reforms remains a formidable challenge.
Exchange-rate pressures, taka depreciation and elevated borrowing costs have combined to depress private-sector credit growth, currently languishing below 8 per cent.
The resulting drag on industrial output and economic activity has prompted the central bank to contemplate a more accommodating policy stance, according to insiders.
The new policy, due later this month, will reveal how far Bangladesh Bank is prepared to go in loosening the purse strings without letting inflation flare again, officials said.