The Bangladesh Bank on Monday unveiled another tight monetary policy for the second half of the current fiscal, in the Monetary Policy Statement (MPS) for the remaining period of the current 2024-25 fiscal.

Given the global and domestic realities, BB remains committed to a tight monetary policy stance for the second half of FY25.

BB's new monetary policy aims to bring inflation down to 7-8% by June

The central bank has focused monetary policy on combating inflation and set a target to down it to 7-8 percent by June. The inflation may decline by 5 percent in the next fiscal year, said Dr. Ahsan H. Mansur, Governor of Bangladesh Bank.

He said this while speaking at a press conference on Monday when the MPS was unveiled at Jahangir Alam Conference Hall at central bank headquarters. The governor also replied to questions on many issues in the banking sector at the event.

He said that non-performing loans (NPL) may be increased to 30 percent by June which is around 18.5 percent now. The banking sector reform and asset evaluation activities are progressing to recover the banks and set them in a clean as well as trusted place.

Mentioning the interim government's massive reforms, the efforts can benefit the economy in the medium to long term, he said.

“The strong domestic political support for financial sector reforms and commensurate support from international development partners underpin the prospects for further momentum to economic recovery,” Dr Mansur added.

For near-term challenges, the bank identified bringing inflation down further, maintaining exchange rate stability, sustaining the rebuilding of foreign exchange reserves, and reviving confidence in the banking system, he added.

Deputy Governor Habibur Rahman in a presentation highlighted the different issues of monetary policy including inflation, credit flow, exchange rate, reserves, policy rates, etc.

He also said that Non-performing loans (NPLs) in Bangladesh's banking sector are expected to exceed 30 percent of the total outstanding loans by June.

As per the latest available data from the central bank, NPLs stood at Tk2.84 lakh crore in September 2024, accounting for nearly 17 percent of the country's outstanding loans of nearly Tk16.83 lakh crore.

In the first half of FY25, the growth rate of money supply was subdued, with private sector credit growth decelerating to 7.3 percent in December 2024, marking the lowest growth rate since October 2021.

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In light of the recent inflation results, the central bank decided to maintain the policy rate unchanged at 10.0 percent. The Standing Lending Facility (SLF) rate will remain at 11.5 percent, while the Standing Deposit Facility (SDF) rate will stay at 8.5 percent.

The private sector credit growth has been set at 9.8 percent, while GDP growth in the current fiscal year (FY25) is expected to decelerate to 4-5 percent, largely due to a combination of natural and industrial disruptions, according to the new monetary policy announced on Monday for the second half of this fiscal year.

The policy says the country has faced severe output losses from devastating floods in several districts, labour unrest in key industrial zones, and gas supply shortages that have hampered manufacturing productivity. Also, the delayed execution and resizing of the Annual Development Programme (ADP) and disruptions linked to the student-led uprising have constrained economic activity.

The economy is going through several challenges. The strong domestic political support for financial sector reforms and commensurate support from international development partners underpin the prospects for further momentum to economic recovery, said at the MPS.

For near-term challenges, the bank identified bringing inflation down further, maintaining exchange rate stability, sustaining the rebuilding of foreign exchange reserves, and reviving confidence in the banking system.

Accordingly, the central bank has developed clear and forward-looking strategies and started implementing robust reform measures to tackle economic and financial challenges.

As part of its implementation strategy, three task forces have been established with the following objectives: (i) conducting a comprehensive asset quality review of banks' assets to lay the groundwork for a thorough banking sector reform program; (ii) enhancing the capacity and efficiency of BB with focus on effective enforcement of regulations and ensuring good governance in the banking system; and (iii) aggressively pursuing the recovery of stolen assets both domestically and internationally.

The monetary policy announced by Bangladesh Bank outlined that the growth rate of public sector credit would be reduced to 17.5 percent by the end of June, down from 18.1 percent at the end of December.

The central bank anticipated that the growth rate of domestic credit would also rise as a result of the new target for public and private credit growth.

The target for domestic credit growth by the end of the fiscal year in June had been set at 11.5 percent, up from 9.4 percent at the end of December, according to the MPS.