BB warns political risks, banking stress may weigh on growth outlook

Economic activities have remained broadly stable, supporting a better growth outlook. However, political developments, soft industrial output, persistent inflation, and global headwinds may undermine growth prospects.

The Bangladesh Bank (BB) has issued a warning in its monetary policy for January–June 2026, unveiled today at its headquarters.

The central bank said the Bangladesh economy is at a critical juncture, transitioning from a possible economic meltdown toward substantial macroeconomic stabilisation and laying the foundations for renewed growth.

However, macro-financial challenges, particularly banking sector vulnerabilities, might sap economic performance in the near future.

“With distressed assets at record highs and significant undercapitalisation, the banking sector continues to face challenges in mobilising resources from surplus units to deficit units,” it said.

The BB said inflation has moderated, albeit at a slower pace.

“The speed of disinflation suggests that inflation expectations may not yet be firmly anchored around the inflation target, potentially complicating efforts to maintain price stability,” it said, noting that the policy rate remains unchanged at 10 percent for January–June 2026.

On the external front, the economy has enjoyed a marked improvement, driven by a stable exchange rate, robust remittance inflows, and a favourable interest rate differential.

It said the economy might continue to benefit from remittance receipts in the near term, with the substantial increase in overseas employment this year helping maintain a favourable external position.

“Nevertheless, the recent rebound in imports might exert pressure on the external balance.”

The productivity gap in the export sector could further weaken export performance in the second half of FY26, and a robust recovery may be delayed unless decisive measures are taken.

“Global economic uncertainties and intensifying geopolitical tensions may further impact export performance and capital flows. Structural bottlenecks, such as the need for economic reforms, infrastructure development—including port operations—technological innovation, and labour market flexibility, must be addressed to unlock growth potential.”