The Bangladesh Bank is not optimistic about the country鈥檚 economic outlook for the 2024-25 financial year as the central bank on Monday predicted economic growth would remain sluggish at about 4-5 per cent in FY25 due to a host of challenges.
In its monetary policy statement for the second half of FY25, the central bank kept the policy rate unchanged, prioritising inflation control and exchange rate stability amid rising non-performing loans in the country鈥檚 banks and non-bank financial institutions.
The MPS stated that economic recovery would be difficult in the short term as the government focuses on fiscal discipline while the central bank works to rein in inflation.
However, it expects the growth would rebound to 6 per cent or higher in FY26 as political uncertainty eases and policy measures take effect.
Key economic drivers include remittance inflows, robust readymade garment exports and increased consumer demand ahead of religious festivals.
The surge in NPLs is likely to exceed 30 per cent of the total outstanding loans, raising serious concerns for the banking industry. Contributing factors include systemic weaknesses, regulatory gaps and exploitative practices such as money laundering and illicit capital flights, the MPS said.
At the MPS unveiling event, Bangladesh Bank governor Ahsan H Mansur highlighted the country鈥檚 ongoing challenges in addressing persistent inflation, stabilising the exchange rate, rebuilding foreign exchange reserves and restoring confidence in the banking system.
Despite implementing monetary and fiscal tightening measures, inflation remained above 10 per cent for an extended period. In response to the latest inflation data, the central bank has decided to maintain the policy rate at 10 per cent, Mansur said.
He also said that repatriating laundered funds from abroad was a complex process that might take four to five years.
He expressed concern that certain borrowers, including entities like S Alam Group, might not be fully aware of the total amounts they had laundered abroad.
As part of its reform initiatives, the Bangladesh Bank is currently reviewing various regulations, including the Bank Company Act, to identify necessary amendments to be made to strengthen the financial sector鈥檚 integrity and stability.
With the Bangladesh Bank maintaining its restrictive monetary stance, businesses and economists remain sceptical about its effectiveness.
Zahid Hussain, former lead economist at the World Bank鈥檚 Dhaka office, said that a tight monetary policy was necessary due to persistent inflation, despite the business sector demanding a somewhat expansionary approach.
With non-food item prices rising for three consecutive months, inflation has become entrenched, requiring a broader coordination between monetary, fiscal and market policies.
The government鈥檚 decision to reduce bank borrowing to Tk聽99,000 crore from Tk聽1,37,500 crore is expected to help implement the monetary policy and create space for private sector credit growth, he added.
However, strict foreign exchange controls, such as the Tk聽122 a dollar ceiling, indicate the Bangladesh Bank鈥檚 reluctance to allow the exchange rate to float, Zahid said.
Intended to curb inflation, such restrictions disrupt trade by preventing competitive pricing in the letter of credit market, he said.
The Dhaka Chamber of Commerce and Industry expressed concern over the continuation of a contractionary monetary policy in the second half of FY25, stating that keeping the policy rate at 10 per cent would restrict the private sector credit growth and hamper economic expansion.
The DCCI also criticised the decision to cap private sector credit growth at 9.8 per cent for January-June FY25, while the actual growth had already fallen to 7.3 per cent in early 2025 鈥� the lowest in 12 years.
The chamber observed that restoring business confidence required pushing up credit growth to the double digit level.
The trade body also faulted the Bangladesh Bank on inadequate steps in strengthening banking governance amid liquidity shortages and rising NPLs.
It urged the central bank to adopt a more flexible monetary policy, closely monitor its impacts on inflation and growth, and introduce targeted measures to boost credit flow.
The new MPS also highlighted growing concerns over NPLs, slowing economic activity, and weak deposit and credit growth 鈥� challenges that continue to strain the banking sector.
It identified key areas such as restoring macroeconomic stability, preventing a potential banking crisis, initiating legal and policy reforms, strengthening central bank operations and recovering assets lost from the banking system.
The private sector credit growth has been declining since November 2022, dropping to 7.3 per cent in December 2024 from 14.3 per cent in March 2021 due to a slow deposit growth and increased government borrowing from commercial banks.
In response, the government and Bangladesh Bank have launched reform initiatives to stabilise the banking sector and ensure long-term economic sustainability.
The success of these measures will depend on their effective implementation, particularly in addressing distressed banks based on the findings of the asset quality review.
Despite the challenges, some positive trends have emerged. The point-to-point inflation rate eased in December 2024 and January 2025, dropping to 9.94 per cent in January from 11.38 per cent in November, largely due to a decline in food inflation.
The Bangladesh Bank anticipates that inflation would fall to 7-8 per cent by June 2025 and approach 5 per cent by the end of the year, provided its policy stance remains firm and stakeholders cooperate.
The depreciation of the taka remains a concern, as the currency lost over 30 per cent of its value from 2022 to 2024, driving inflation higher through exchange rate effects.
The Bangladesh Bank aims to manage the exchange rate prudently, balancing the need for curbing inflation with efforts to boost remittance inflows, strengthen export competitiveness and rebuild foreign exchange reserves.
