Bangladesh Bank is expected to keep its policy (repo) rate unchanged at 10% when it announces the Monetary Policy Statement (MPS) for the July-December period of FY2026-27 on Monday, as the central bank seeks to strike a balance between controlling inflation and supporting private sector credit and economic recovery.

The first MPS under the newly formed BNP-led government is expected to maintain the central bank’s tight monetary stance while introducing targeted measures to encourage productive investment and revive private sector lending.

According to banking sector officials, the policy may include targeted liquidity support for productive sectors and could reintroduce a cap on the spread between banks’ lending and deposit rates to help reduce borrowing costs and improve monetary policy transmission.

Bangladesh Bank is also expected to gradually expand money supply for productive activities without undermining its ongoing efforts to bring inflation under control.

The central bank has maintained a contractionary monetary policy since the first half of FY2023-24, raising the repo rate in phases to 10% by October 2024 to curb inflation through tighter liquidity and restrained demand.

Although inflation has eased from double-digit levels recorded last year, it remains above the central bank’s target. Point-to-point inflation stood at 9.42% in May, while the 12-month average remained above 8.6%, exceeding the official target of 7%.

Bankers believe Bangladesh Bank is unlikely to ease its restrictive monetary policy despite moderating inflation, as price stability continues to be its top priority.

The new policy comes as private sector credit growth has slowed due to high borrowing costs, weak business confidence and cautious lending by banks, raising concerns over sluggish private investment.

Fahmida Khatun, executive director of the Centre for Policy Dialogue (CPD) and a member of Bangladesh Bank’s board of directors, said monetary policy alone cannot effectively tackle inflation because much of the price pressure stems from supply-side factors.

She noted that supply chain disruptions, exchange rate depreciation, higher import costs and inefficiencies in domestic markets have been major contributors to inflation.

Khatun also said that lowering interest rates alone is unlikely to boost private sector credit, as businesses remain reluctant to invest amid policy uncertainty, energy shortages and an unfavourable business environment.

Government officials believe targeted refinance schemes and sector-specific support, rather than broad monetary easing, will be more effective in stimulating productive investment while keeping inflationary pressures under control.