The ongoing political situation in Bangladesh is a significant factor influencing economic stability and inflation rates.
The recent floods have compounded existing economic challenges, impacting food supply and prices.
The central bank's continued rate hikes indicate a proactive approach to monetary policy in response to economic pressures.
If inflation continues to rise, further interest rate hikes may be necessary, which could impact economic growth and consumer spending.
The government may need to implement additional measures to stabilize the currency and control food prices as external factors persist.
Political stability will be crucial for effective economic management and recovery in Bangladesh.
Bangladesh has announced its fifth interest rate hike of 2024, raising the overnight repo rate by 50 basis points to 10% effective October 27. This decision aims to combat persistent inflation, which reached 9.9% in September compared to the previous year, driven by political unrest and recent floods.
The central bank's strategy is to maintain a contractionary monetary policy to bring inflation down to more manageable levels. Alongside the repo rate increase, the permanent lending rate has been raised to 11.50%, and the permanent deposit rate has been increased to 8.50%.
Despite efforts to control inflation, food prices have surged by over 10%, exacerbated by high energy costs and expensive imports due to a depreciating currency. The average inflation rate in Bangladesh is recorded at 9.7% for FY2023-24, a slight improvement from the previous fiscal year's rate of 9%.
The World Bank has highlighted that the weak monetary policy transmission mechanism, particularly following the abolition of lending rate caps last May, is contributing to the challenges in managing inflation effectively.
