The repo interest rate, a policy tool used to control inflation, is likely to be raised again, with an expected increase from 10% to 10.5% in the January–June monetary policy for this fiscal year. This move could lead to higher loan interest rates for consumers, increasing business costs. This comes amid high inflation and the government’s decision to raise VAT and taxes on over 100 goods and services, while also approving up to a 20% dearness allowance for public employees. Despite these measures, the loan interest rate for government officials and bankers will remain unchanged at 4%.

Experts suggest that prolonged dollar shortages and restrictive monetary policies have led to a decline in private investment, with private sector credit growth dropping to 7.66% by November. Inflation, however, rose to 10.34% in December, far from the government’s target of reducing it to 7.5% by the fiscal year’s end. Over the past two and a half years, inflation has hovered around 10%, exacerbated by higher tariffs on essential goods and allowances for public employees.

Unlike global trends where interest rates were raised earlier, Bangladesh capped rates at 9% from April 2020 to June 2023. When other countries started lowering rates, Bangladesh shifted to a “smart” rate-setting system under the IMF program in July 2023, eventually leaving rates to market forces. This led to a rapid increase in interest rates, now exceeding 15%.

Dr. Moinul Islam, a former economics professor, argues that raising interest rates has failed to control inflation effectively. Instead, he emphasizes stronger market monitoring and breaking price-controlling syndicates. He also highlights that systemic corruption, including the siphoning of billions from banks, has significantly harmed the economy.

The central bank has begun discussions on the second-half monetary policy under Governor Dr. Ahsan H. Mansur, marking his first policy announcement. While the governor indicates further rate hikes if inflation persists, a deputy governor acknowledges that inflation is not solely driven by money supply issues.

The repo rate, used by banks to borrow from the central bank, has been increased 13 times since May 2022, reaching 10% in October 2023, while the reverse repo rate stands at 8.5%. The unchanged 4% bank rate benefits public sector employees, as loans linked to this rate remain low-cost. Private banks, however, face losses due to high deposit and borrowing rates, which often exceed 12%.

Between 2003 and 2020, the bank rate remained steady at 5% before being reduced to 4% in July 2020 amid a broader reduction in interest rates. With inflation surging post-COVID-19 and the Russia-Ukraine war, repo rates have increased significantly, yet the bank rate remains unchanged, reflecting disparities in financial policy impacts on different sectors.