For the first time in seven months, Bangladesh's inflation rate returned to single digit of 9.94 per cent in January, according to latest official information which offers a critical window for policymakers to reassess their monetary stance.
January 2025 inflation data was expected to be single digit as December's reading fell to 10.89 per cent. With the Bangladesh Bank (BB) set to announce its Monetary Policy Statement (MPS) for the second half (H2) of FY2024-25 on February 10, speculation is growing that the central bank may pause its aggressive tightening cycle and pivot toward a more accommodative approach to support economic growth.
The Bangladesh Bank's four consecutive rate hikes in 2024, culminating in a 10 per cent policy rate, successfully curbed inflationary pressures.
However, high borrowing costs have stifled private sector credit growth, slowing investment and economic expansion.
As inflation moderates, the central bank faces a crucial decision: whether to hold rates steady to cement price stability or ease policy to inject liquidity into the economy. A premature cut could risk reigniting inflation, especially if global commodity prices rise or supply shocks reemerge.
Economists suggest that maintaining current policy rates would provide businesses with clarity, ensuring stability while allowing inflation to cool further.
However, banks have already reported a decline in corporate loan demand, and exporters, particularly in textiles, continue to struggle with declining orders. A shift to a more growth-oriented stance could stimulate investment but requires careful calibration to avoid triggering another inflationary surge.
Bangladesh's monetary policy direction also hinges on external factors. While regional peers like India and Indonesia have maintained a cautious approach despite easing inflation, global economic uncertainty and volatile energy prices. Domestically, government borrowing levels will influence liquidity conditions, determining how much room the central bank has to maneuver.
The H2MPS to be declared on February 10 is likely to set the tone for the second half monetary policy in Bangladesh's economic trajectory.
A senior Bangladesh Bank official said if inflation remains on a downward path, policymakers may opt for a neutral stance, balancing stability with growth.
Any deviation-either a premature easing or continued tightening-could reshape business sentiment and investment flows, underscoring the delicate balance Bangladesh Bank must strike in the coming months, he said.