BB hikes private credit growth projection to 8.5%

The Bangladesh Bank (BB) has revised its projection for credit flow to the private sector upward as it cuts the deposit rate to discourage banks from placing excess liquidity with the central bank.

The BB has decided to lower the Standing Deposit Facility (SDF) rate from 8 percent to 7.5 percent for the January-June 2026 period to stimulate interbank activity and private-sector lending.

It, however, kept the policy rate and the Standing Lending Facility (SLF) rate unchanged to “incentivise more active liquidity management, deepen interbank market transactions, and facilitate greater credit flow to private sectors.”

The central bank’s move comes as credit flow to the private sector grew only 6.1 percent in December, the lowest in at least four years, due to factors including crowding out by public-sector borrowing, as net credit to the government increased by 32.8 percent by December 2025.

The BB said investors also remained cautious in making new investments amid political uncertainty stemming from the forthcoming national election. 

“Stress in the banking sector, including rising non-performing loans, and cautious lending by banks have further constrained private-sector expansion,” it added.

Additionally, global headwinds, including sluggish growth in key trading partners such as the European Union, the US, and Japan, rising trade barriers, and geopolitical uncertainties, continue to pose risks to export demand and foreign direct investment inflows.

However, with a sustained recovery in deposit growth to around 12-14 percent by December 2026, private-sector credit growth is expected to increase to more than 8 percent by June 2026, the BB said.

To stimulate growth in priority sectors such as agriculture and the Cottage, Micro, Small, and Medium Enterprises (CMSME) sector, the BB has relaxed general loan provisioning requirements. 

“This strategy is intended to encourage banks to increase lending in these priority areas,” it said.

The central bank said public-sector credit growth is projected at 21.6 percent, underpinned by higher pre-election fiscal spending for the February 2026 national election and additional post-election administrative expenditures during the government transition period.

Moreover, the government’s budgetary target of borrowing Tk 1,18,000 crore from the banking system has also been duly considered in projecting the public-sector credit growth limit, the BB added.