Ahmed Masum & Co.

Bangladesh Bank Monetary Policy Statement, October–December 2026

Inflation, Credit and the Outlook for Economic Recovery

Ahmed Masum & Co., Chartered Accountants

Executive Summary

Bangladesh Bank has kept the policy repo rate at 9.50% for the October–December 2026 quarter. The Standing Lending Facility (SLF) remains at 11.00% and the Standing Deposit Facility (SDF) at 7.50%. The decision follows the 50 basis-point reduction in the repo rate in July 2026.

The decision comes against a mixed economic backdrop. Headline inflation has declined, but non-food inflation remains high. Economic activity has weakened, private-sector credit growth remains subdued and the banking sector continues to face significant balance-sheet pressures.

The October–December statement is the first Quarterly Monetary Policy Statement issued under Bangladesh Bank's new quarterly framework. More frequent policy reviews should provide businesses and financial institutions with a clearer view of developments in inflation, growth, liquidity, credit and the external sector.

The immediate policy challenge is to support economic activity without allowing inflationary pressures to become persistent. The MPS identifies the overall risks as tilted towards weaker growth and higher inflation.

Key Indicators

1. Monetary Policy and Inflation

At its meeting on 23 September 2026, the Monetary Policy Committee retained the three policy rates at their existing levels:

Repo Rate: 9.50%

Standing Lending Facility: 11.00%

Standing Deposit Facility: 7.50%

The repo rate had remained at 10.00% since October 2024 before being reduced by 50 basis points in July 2026. Bangladesh Bank explained that an excessively restrictive monetary stance could impose increasing costs on employment and economic recovery without adequately addressing inflation that was largely supply-driven.

The policy corridor remains asymmetric. The SLF is 150 basis points above the repo rate, while the SDF is 200 basis points below it.

Bangladesh Bank has not indicated a predetermined direction for the next policy decision. The MPS states that the monetary-policy stance will be adjusted as necessary in response to domestic and global developments.

Inflation has eased, but pressure remains outside food

Headline inflation declined to 8.26% in August 2026, from 9.16% in June. Food inflation fell to 7.02%, while non-food inflation remained at 9.32%. Bangladesh Bank attributes the improvement in food inflation mainly to better domestic supply conditions and favourable base effects.

The relatively high non-food inflation indicates that price pressures remain significant in areas such as transport, energy, rent and services. Earlier increases in administered energy prices have continued to work through the economy, while the fuel-price adjustment in late September is expected to add to transport and production costs.

The inflation outlook is also exposed to global energy and commodity prices, freight and insurance costs, fertiliser and food prices, inflation expectations and the possible effects of implementing the national pay scale.

As an analytical comparison, the 9.50% repo rate is approximately 1.24 percentage points above August headline inflation, but only around 0.18 percentage point above non-food inflation. This is not a monetary-policy rule used by Bangladesh Bank; it simply illustrates the relatively limited margin between the policy rate and persistent non-food price pressure.

The government has also introduced a family-card programme providing Tk. 2,500 per month to eligible poor households through mobile financial services, aimed at cushioning vulnerable households from higher prices.

2. Economic Activity and Credit

The annual GDP figure does not fully reflect the weakness in recent economic activity.

BBS estimated FY26 real GDP growth at 4.14%, while quarterly GDP growth was only 2.2%. Industrial output contracted by 0.28% in Q3 FY26. Bangladesh Bank also points to weak industrial production, power generation, fuel supply and private-sector credit as evidence of subdued activity.

Investment has slowed as businesses contend with high financing costs, energy shortages, infrastructure constraints and uncertainty over domestic and external demand. Manufacturing is additionally affected by higher input costs, supply-chain disruptions and weak global demand, particularly for garments.

Bangladesh Bank considers the economy to be operating below potential, with the output gap widening in Q1 FY27.

Monetary transmission

The response of financial-market rates to the July repo-rate reduction has been relatively quick. The interbank call-money rate declined and moved below the policy rate, while government-security yields also fell as excess liquidity increased and banks increased their holdings of government securities.

Private-sector lending has responded much less strongly. Credit growth was only 4.75% in August 2026, with fresh disbursements contracting in some segments. Bangladesh Bank attributes the weakness to subdued investment, elevated borrower risk, uncertain returns and impaired bank balance sheets.

For businesses, this means that movement in the policy rate or money-market rates may not translate immediately into easier access to credit.

3. Banking Sector and Liquidity

The banking sector remains a major factor in the effectiveness of monetary policy.

Commercial banks have accumulated substantial liquid assets, but the liquidity is unevenly distributed. Stronger banks hold significant liquidity, while some weaker institutions continue to face funding and liquidity pressures.

The reported NPL ratio of 32.78%, together with significant capital erosion, further weakens the resilience of the banking system.

This has direct implications for credit. System-wide liquidity does not necessarily mean that funds are readily available to all borrowers or that every bank has the capacity to expand lending.

Broad money and private-sector credit

Broad money grew by 12.40% at the end of August 2026, driven mainly by increased net credit to government and higher net foreign assets. Private-sector credit, by comparison, grew by only 4.75%.

The divergence deserves attention. A significant part of the increase in monetary aggregates has not translated into private-sector financing.

Bangladesh Bank also links increased government borrowing from the banking system to weak revenue mobilisation and substantial fiscal financing requirements.

The effectiveness of monetary policy will therefore depend not only on the policy rate and system liquidity, but also on the financial condition of individual banks and their capacity to extend productive credit.

Bangladesh Bank has specifically identified bank solvency, governance and credit discipline as areas requiring improvement to strengthen monetary transmission.

4. External Sector and Exchange Rate

Bangladesh's external position strengthened considerably during FY26, with the overall balance of payments recording a USD 6.60 billion surplus. Strong remittance inflows helped support the current account despite a wide trade deficit.

The position weakened during the first two months of FY27, when the overall balance moved into deficit, mainly because of the financial account. The current account remained in surplus, supported by strong remittance inflows.

Remittances grew by 18.9% during the first two months of FY27, providing an important source of external support. At the same time, higher prices for fuel, LNG, fertiliser and other raw materials increased the import bill.

Exchange-rate policy

The taka remained broadly stable against the US dollar during FY26, helping to limit imported inflation. Bangladesh Bank has, however, cautioned against excessive intervention to maintain exchange-rate stability. Such intervention could reduce the exchange rate's ability to absorb external shocks, affect export competitiveness and place pressure on reserves.

The MPS therefore places greater emphasis on orderly exchange-rate flexibility.

For businesses, particularly importers, exporters and foreign-currency borrowers, exchange-rate assumptions should be tested under more than one scenario. A fixed exchange-rate assumption may not be appropriate for longer-term financial planning.

The MPS does not provide a foreign-exchange reserve figure; reserve adequacy therefore cannot be assessed from the balance-of-payments figures presented in the statement alone.

5. Global Environment and Principal Risks

Global conditions have become less favourable for Bangladesh.

The prolonged disruption in the Strait of Hormuz could keep petroleum and LNG prices elevated and volatile and increase freight and insurance costs. Higher prices for fuel, LNG, fertiliser, wheat, maize and edible oil would increase import costs and put further pressure on domestic production costs.

The MPS cites the IMF's July 2026 global growth projections of 3.00% for 2026 and 3.40% for 2027, compared with 3.10% and 3.20%, respectively, in April. The IMF also raised its 2026 global inflation forecast to 4.7%.

Global financial conditions have also become less supportive. The MPS reports that the US Federal Reserve raised its target range by 25 basis points in September 2026 and indicated that persistent inflation risks could warrant further tightening.

For Bangladesh, the main channels are higher external borrowing costs, pressure on the taka, potentially weaker capital flows and higher import prices.

Principal risks

Bangladesh Bank's assessment is that the overall risks remain tilted towards weaker growth and higher inflation.

6. Measures to Support Economic Activity

The response to the current slowdown extends beyond the policy rate.

The government and Bangladesh Bank have introduced a Tk. 60,000 crore stimulus package, including Tk. 20,000 crore to support the reopening of closed factories. Refinance schemes are also available for agriculture, CMSMEs and export diversification.

The Import Policy 2026–2029 permits certain industrial and commercial imports to proceed without letters of credit, with the stated objective of supporting productive imports and private investment.

The effectiveness of these measures will depend largely on implementation and the ability of banks to allocate credit to viable businesses. Bangladesh Bank identifies implementation delays, weak bank balance sheets and high borrower indebtedness as potential constraints.

7. Outlook for FY27

The near-term outlook remains uncertain.

The MPS cites a World Bank FY27 GDP growth projection of 4.60% and an IMF projection of 3.50%, with the latter revised down from 4.30%. Bangladesh Bank does not provide its own numerical FY27 GDP forecast in the statement.

Bangladesh Bank expects any recovery to depend on improved energy supply, stronger business confidence, better export demand and renewed private investment.

Inflation could continue to decline if food-supply conditions remain favourable and monetary and exchange-rate conditions help contain demand and cost pressures. The pace of disinflation, however, remains subject to non-food inflation, inflation expectations, global energy prices and the recent fuel-price adjustment.

A sustained return to the inflation target will require broad-based and durable disinflation.

The MPS does not set out a specific timetable or detailed resolution measures for banking-sector reform. Progress will therefore need to be assessed through subsequent policy announcements, regulatory measures and financial-sector indicators.

8. Implications for Businesses and Financial Management

The present monetary and economic conditions have several practical implications for businesses.

Financing and liquidity

Companies should plan financing requirements on the basis of prevailing borrowing costs rather than assuming an early decline in interest rates.

Working-capital requirements should be reviewed regularly, with particular attention to:

receivable collection;

inventory levels;

supplier-credit arrangements;

cash conversion cycles; and

short-term borrowing requirements.

· 

Foreign exchange and imports

Businesses with foreign-currency liabilities or substantial imported inputs should assess the effect of exchange-rate movements on costs, debt servicing, margins and cash flows.

Importers should also review the provisions of the Import Policy 2026–2029 applicable to their transactions, particularly documentation and payment arrangements.

Investment decisions

Capital expenditure should be assessed under different assumptions for interest rates, sales growth, energy prices, imported input costs, exchange rates and project implementation periods.

Given the subdued growth outlook and weak private-sector credit, projected cash flows and expected returns should be tested carefully before committing significant capital.

Financial reporting and valuation

The prevailing economic conditions may affect assumptions used in:

impairment testing;

valuation models;

expected credit-loss assessments;

liquidity forecasts;

going-concern assessments; and

financial projections.

·      

Companies with substantial borrowings, recurring losses, significant short-term obligations or dependence on refinancing should pay particular attention to liquidity and going-concern assessments.

These matters should be considered in accordance with the applicable financial reporting, auditing and regulatory requirements.

Board and audit committee oversight

Boards and audit committees should keep the following developments under regular review:

inflation, particularly non-food inflation;

private-sector credit growth;

call-money rates and government-security yields;

banking-sector NPLs and capital;

exchange-rate movements;

remittance and balance-of-payments developments;

government borrowing; and

energy and commodity prices.

·    

9. Assessment

The October–December 2026 MPS represents a pause following the July reduction in the repo rate, rather than a major change in monetary-policy direction.

The underlying economic indicators remain mixed. Headline inflation has declined, but non-food inflation remains high. Economic activity and investment are subdued, while private-sector credit has grown only modestly. At the same time, the banking sector continues to face elevated NPLs and capital erosion.

The contrast between 12.40% broad-money growth and 4.75% private-sector credit growth is particularly relevant. It indicates that increased monetary liquidity is not translating proportionately into private-sector financing.

The external sector provides some support. FY26 ended with a USD 6.60 billion overall balance-of-payments surplus and remittances remain strong. The overall balance, however, moved into deficit during the first two months of FY27, while higher global energy and commodity prices are increasing import costs.

In our view, the effectiveness of monetary policy will depend increasingly on the condition of the banking system and the quality of credit transmission. A change in the policy rate alone is unlikely to resolve the structural constraints affecting investment, productive lending and economic activity.

For businesses, the present environment calls for sound liquidity management, prudent borrowing, realistic financial projections, careful foreign-exchange management and disciplined capital investment.

Indicators to Watch

For the October–December quarter, the following indicators will be particularly relevant:

Conclusion

Bangladesh Bank's first Quarterly Monetary Policy Statement provides a more frequent framework for assessing the country's monetary and macroeconomic conditions. For October–December 2026, the repo rate remains at 9.50%, with the SLF at 11.00% and the SDF at 7.50%.

The decision reflects the balance Bangladesh Bank is attempting to maintain. Inflation has moderated, but non-food price pressures remain significant. Economic activity is weak, private-sector credit growth is subdued and the banking sector remains under considerable strain.

The next phase will depend on whether the decline in inflation becomes more broad-based, whether private-sector credit begins to recover and whether banking-sector reforms improve the transmission of monetary policy to the wider economy.

For businesses, the policy rate should not be viewed in isolation. Financing conditions, bank liquidity, credit availability, exchange rates, energy prices, fiscal borrowing and external-sector developments will all influence the operating environment.

A cautious approach to cash-flow management, borrowing, foreign-exchange exposure and capital investment will remain appropriate while the economy adjusts to the current combination of elevated inflation and weak growth.

Source

Bangladesh Bank, Monetary Policy Department, Quarterly Monetary Policy Statement, October–December 2026, 30 September 2026.

The statistical information and descriptions of Bangladesh Bank's policy position in this Insight are based on the above MPS. The analysis and business implications are the professional observations of Ahmed Masum & Co., Chartered Accountants.

Disclaimer: This Insight is intended for general information and professional discussion. It does not constitute investment, tax, legal, accounting or financial advice. Readers should consider their particular circumstances and obtain appropriate professional advice before making decisions.

Ahmed Masum & Co., Chartered Accountants

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