Bangladesh has announced a fifth interest rate hike this year in an attempt to curb rising prices, as persistent inflation is a major concern for the interim government led by Muhammad Yunus, according to Bloomberg.
The Central Bank decided to raise the overnight repurchase agreement (repo) price by 50 basis points to reach 10%, effective October 27.
This decision came as part of “continued efforts to maintain a contractionary monetary policy aimed at reducing inflation to a desirable level,” according to a statement issued by the central bank on Tuesday.
Inflation and food prices
Consumer prices in Bangladesh rose by 9.9% last September compared to the previous year, amid political unrest and floods.
Despite the recent decline from double-digit levels, inflation remains uncomfortably high, according to Bloomberg, as food prices continue to rise by more than 10%.
The permanent lending rate was also raised by 50 basis points to 11.50%, and the permanent deposit rate was increased to 8.50% from 8%.
Bangladesh’s inflation rate averaged 9.7% during the 2023-2024 fiscal year, and 9% in the previous fiscal year, according to Bloomberg, even after the introduction of a framework targeting interest rates in the 2023 fiscal year.
High energy prices, in addition to costly imports as a result of the devaluation of the currency, are contributing to an increase in the prices of food supplies, according to a World Bank report last week.
The report also pointed to the weakness of the monetary policy transmission mechanism as a result of the limits on lending rates, which were canceled last May.
