BB’s 7.5% inflation target suggests ambition over base-case: BRAC EPL

Bangladesh Bank's (BB) own model projects inflation at 8.9 percent by December 2026 and 8.6 percent by June 2027, suggesting its 7.5 percent ceiling is more a policy ambition than a base-case outcome, according to a report by BRAC EPL Stock Brokerage.

BB kept its policy rate unchanged at 10 percent, alongside the Standing Lending Facility (SLF) at 11.5 percent and the Standing Deposit Facility (SDF) at 7.5 percent.

The stance remains contractionary, with the central bank adding targeted credit stimulus rather than broad-based rate easing, according to BRAC EPL’s Macroeconomic Report published on June 30 after the announcement of the monetary policy.

The policy message is to keep the rate anchor tight to contain inflation and foreign exchange (FX) risk while using targeted credit channels to address weak private investment and employment pressure, said the BRAC EPL Stock Brokerage report.

The report said the policy rate hold indicates that BB is prioritising policy credibility over near-term growth acceleration. The central bank is effectively saying that inflation is still too high, FX stability is too important, and expectations are too fragile to justify a repo cut.

A repo cut is unlikely to be credible until inflation expectations move decisively below 8 percent and food and non-food price stickiness breaks, said the report, citing an analyst.

The BRAC EPL report said the Monetary Policy Statement (MPS) effectively confirms that Bangladesh's inflation problem is now structural and supply-heavy, not merely monetary.

In its assessment, the central bank has attributed inflationary pressure to the political transition, floods, global commodity shocks, exchange-rate realignment, domestic market frictions, administered fuel-price adjustments, and Middle East-related energy and fertiliser shocks.

The BRAC EPL report said BB is pursuing non-monetary measures to support economic activity and address structural challenges, including the Bangla QR rollout, strengthening the bad-asset clean-up process, and stolen-asset recovery, among other steps.

According to the report, key macro risks remain sticky supply-side inflation, fiscal dominance, weak private-sector credit, elevated non-performing loans (NPLs), and the sustainability of remittance-led external stability.

The report said the next stage of disinflation will depend as much on trade policy, market monitoring, energy supply, import facilitation, and agricultural logistics as on the policy rate.