Economic activities may slow down in the near term as the government has opted to initiate massive economic reform measures, the Bangladesh Bank (BB) said yesterday.

The reforms will eventually benefit the economy in the medium and long run, it said in its July-September issue of Bangladesh Bank Quarterly, a publication of the central bank.

This comes two days after the World Bank projected that Bangladesh's economy may grow by 4.1 percent in the fiscal year 2024-25 due to subdued investment and industrial activity amid heightened political uncertainty.

In its quarterly publication, the central bank said that Bangladesh's economy is going through a transitional phase with the formation of the interim government, while a gradual return to economic normalcy has already started.

The reforms will eventually benefit the economy in the medium and long run, the central bank said

The BB said the economy experienced significant disruptions across all three major sectors—agriculture, industry, and services—following the uprising in July and August last year.

Moreover, when the interim government started its journey with greater commitments towards economic reforms, economic activities were affected by repeated floods in many districts during August and September 2024.

Nonetheless, rebounding external demand, reflected in robust export growth and hefty remittance inflows during the July-September period of fiscal year 2024-25, depicted a promising momentum towards growth performance in the coming quarters.

The BB said inflation rose to 9.92 percent in the first quarter of FY25, up from 9.72 percent in the last quarter of FY24.

Inflation surged to a record high of 11.66 percent in July 2024 before softening in the subsequent two months.

"The July spike, the highest in 13 years, was primarily attributed to supply chain disruptions from the nationwide student uprising," said the central bank.

The BB said rising food inflation was the main driver of headline inflation in the first quarter of FY25.

Moreover, the point-to-point core inflation, which excludes volatile items such as food and fuel, increased to 10.40 percent at the end of the July-September quarter of FY25, up from 8.32 percent at the end of the previous quarter.

The central bank said it intensified its contractionary monetary policy to ease persistent inflationary pressures.

"Inflation may require the continuation of a tight monetary policy stance for some periods ahead," it said, adding that the BB is likely to maintain its contractionary monetary policy stance until clear signs of easing inflation are evident.

The central bank said its initiatives for banking reforms to ensure governance in the financial sector are expected to bring macroeconomic stability very soon.

"In the medium term, the economy is anticipated to rebound gradually with the advancement of the reform activities and correction processes initiated by monetary and fiscal authorities."

The central bank said Bangladesh's external sector started to recover, reflected in an improved current account balance, a more stabilised exchange rate, and slower erosion of foreign exchange reserves.