Bangladesh Bank (BB) increased its policy rate by 50 basis points to 10 per cent as part of intensified efforts to control inflation, which remains stubbornly high.
This adjustment will take effect from October 27, underlining the central bank's commitment to tightening the monetary policy further to manage price stability.
The latest hike pushes the overnight repo rate from 9.5 per cent to 10 per cent, making borrowing costlier for commercial banks dealing with liquidity shortfalls.
Additionally, the interest on Standing Liquidity Facility (SLF)-a mechanism to support short-term liquidity needs-was increased from 11 per cent to 11.5 per cent.
To complement these measures, Standing Deposit Facility (SDF) rate, which affects returns on excess bank reserves, was raised from 8 per cent to 8.5 per cent.
The BB Governor Ahsan H. Mansur stated that these policy changes are aimed at containing inflation while stabilizing exchange rates and encouraging remittance inflows.
He added, "We expect inflation to show improvement by March or April next year, but further rate hikes are possible if needed."
The central bank had previously increased the repo rate by 50 basis points in August 2024, making this the second consecutive hike.
This aggressive policy stance reflects growing concerns over inflation, which, though slightly declining, remains above target at around 10 per cent.
The new rate is expected to curb excessive demand by restricting credit growth. Bankers and industry analysts predict that higher borrowing costs will likely slow down economic activity, affecting both businesses and consumers.
However, they also recognize that such measures are necessary to stabilize prices. As one analyst noted, "While the immediate impact may be a reduction in lending, the focus now is on long-term inflation control to safeguard economic stability."
