Bangladesh’s Fifth Rate Hike of 2024: Combating High Inflation

Bangladesh’s Continued Fight Against Inflation

In a decisive move to stabilize its economy, Bangladesh’s central bank has raised the key policy rate for the fifth time in 2024. This latest increase, effective from October 27, raises the overnight repurchase agreement rate by 50 basis points to 10%. The government is making concerted efforts to tame inflation, which remains a significant concern for the interim administration led by Muhammad Yunus.

Understanding the Rate Hike Decision

The central bank emphasized that this rate hike is a critical part of their strategy to implement a contractionary monetary policy to reduce inflation to a manageable level. In September, consumer prices in Bangladesh surged by 9.9% compared to the previous year, exacerbated by political instability and recent floods. Despite short-term alleviations from double-digit levels, inflation rates remain uncomfortably high, particularly with food prices consistently exceeding the 10% mark.

The Broader Economic Context

Alongside the overnight repurchase agreement rate increase, the standing lending facility rate was raised to 11.50%, while the standing deposit facility rate was adjusted to 8.50%. The average consumer price inflation has been 9.7% for the 2023-24 fiscal year, a notable rise from the 9% average of the previous year. Various factors, including high food and energy costs, have been identified as contributors to this inflationary pressure, with the World Bank pointing out the weaknesses in the monetary transmission mechanism as a hurdle to effective economic stabilization.