The Bangladesh Bank is expected to keep the policy rate unchanged at 10 percent in its monetary policy stance for the second half (January to June) of the current fiscal year as inflation eased slightly in December.

The central bank is set to unveil its monetary policy stance today through a press conference scheduled for 3:00 pm at the Bangladesh Bank headquarters. The final decision on the monetary policy stance is expected to be made at the board of directors' meeting of the central bank this morning.

Bangladesh Bank Governor Ahsan H. Mansur will announce the monetary policy stance for the second half of fiscal year 2024-25. This will be the first monetary policy announced by Mansur since he became governor of the Bangladesh Bank following the political changeover on August 5.

Members of the monetary policy committee told The Daily Star that the central bank had initially planned to unveil the monetary policy stance within January but postponed it until Monday (February 10) to review the inflation rate for December.

The governor had hinted that if inflation eased in December, the policy rate would remain unchanged since it had already been raised at an aggressive pace, they added.

Since inflation in December eased slightly, the policy rate is expected to remain unchanged.

In December 2024, inflation declined marginally to 10.89 percent from 11.38 percent in the previous month but remained above the 10 percent threshold for the second consecutive month, according to the Bangladesh Bureau of Statistics. This left the annual average inflation rate for 2024 at 10.32 percent.

Inflation in Bangladesh has remained above 9 percent since March 2023, with the central bank's existing contractionary monetary policy yet to significantly reduce consumer prices. Bangladesh Bank has hiked the policy rate several times, bringing it to 10 percent.

The policy rate is the interest rate at which commercial banks borrow from the central bank.

Beyond inflationary pressure, the overall economy has been facing uncertainties following the fall of the Awami League government. This has been reflected in the deceleration of private sector credit growth.

Private sector credit growth slowed to its lowest pace in at least 11 years due to uncertainty in the investment environment following the recent political changeover. In December 2024, credit flow to private firms grew by 7.28 percent, the lowest since at least 2015, according to Bangladesh Bank data. This was down from 7.66 percent in November.

The current investment climate, banks' cautious lending approach after the political changeover, persistent inflation, increasing lending rates, and poor loan recovery have all contributed to the slowdown in credit growth, industry insiders said.

The volume of defaulted loans reached a staggering Tk 2,84,977 crore as of September 2024, with some banks struggling to provide fresh loans due to a liquidity crunch.

However, the foreign exchange market has shown some flexibility recently, thanks to an uptick in incoming remittances.

Mustafa K. Mujeri, executive director of the Institute for Inclusive Finance and Development, recently said that raising the policy rate to 10 percent had not effectively alleviated inflationary pressure.

"So, it would not be wise to raise the policy rate any further," he added.

Mujeri, a former chief economist of Bangladesh Bank, explained that the central bank's primary tool for addressing inflation is the policy rate. However, further increases would likely harm the economy rather than control inflation, as they would drive up deposit and lending rates.

He suggested that, beyond maintaining a tight monetary stance, the Bangladesh Bank must identify the root causes of inflation and take appropriate measures to reduce it.