Bangladesh's central bank has recently raised its key policy rate by 50 basis points to 10% in an effort to address inflation, which stood at 9.9% in September. This inflation is primarily driven by political instability, flooding, and high food prices.
The central bank is committed to implementing a contractionary monetary policy to stabilize prices. Alongside the key rate increase, the standing lending facility rate has been raised to 11.50%, while the standing deposit facility rate has increased to 8.50%. Consumer price inflation has averaged 9.7% in the current fiscal year, with food prices consistently surging above 10%. The World Bank has noted that factors such as high food and energy costs, expensive imports due to a depreciating currency, and the lifting of a cap on lending rates in May have weakened the monetary transmission mechanism.
It is crucial for Bangladesh to implement reforms to address these economic challenges, and the International Monetary Fund has pledged support in achieving economic stability.