Bangladesh Bank, in an attempt to fight persistent inflation, has increased the Repo Interest Rate by 50 Basis Points, and set it at 10%.
This is the third price increase in just two months, as the bank seeks to reduce the high prices.
This adjustment, which follows previous increases in August and September, highlights Bangladesh Bank’s strategic goal to reduce the money supply to bring inflation to its target level.
The increase in borrowing rates for banks is likely to be a result of the economic stress that the country faces.
Why has the Bangladesh Bank raised the rate of the Repo again?
Bangladesh is still fighting high inflation, which has led to the decision to increase the Repo rate.
After previous increases in August and September, the central bank has decided to raise rates by an additional 50 basis points.
It is the objective to reduce the liquidity of the banking system by tightening the money supply.
Bangladesh Bank’s 10% rate is intended to control inflation, but this may increase borrowing costs for banks that are experiencing a liquidity shortage.
Bangladesh Bank also increased the Standing Loan Facility (SLF), which is now at 11.50%, and the Standing Deposit Facility(SDF), which was previously set at 8.50%.
The policy interest corridor is designed to control the money flow within the economy by influencing the costs of commercial bank borrowing and returns on deposit.
This tightened monetary policy is part of an overall strategy to curb inflation in Bangladesh, which continues to be a major challenge for the economy.
The latest figures from Bangladesh Bureau of Statistics show that despite efforts to reduce inflation, it was higher than the 9.10% rate in the same time period of last year.
Food inflation is still a major concern. It hovers around 12%.
The high food price has disproportionately affected low-income families, causing social unrest.
Rate hikes by the central bank are seen as an attempt to stabilise these conditions.
What will the inflation rate be by 2025?
Ahsan H Mansur, the Governor of Bangladesh Bank has expressed his hope for a reduction in inflation by March or April 2019.
He admits it will take time to stabilize the price level.
It is anticipated that the central bank will maintain a strict monetary policy to help stabilize the economy, and to combat inflationary pressures.
The Governor Mansur also pointed out that an increase in remittances, and stabilization of the exchange rate are positive indicators which could help reduce inflation in coming months.
This latest rate increase is one of several measures designed to address Bangladesh’s current economic problems.
The governor, Mansur, took over the reins of government earlier this year and has made it a priority to control inflation by implementing a contractionary policy.
The aim of this approach is to reduce the rising prices which have caused households in the entire country stress.
Success of the policy will be determined by how well the central bank is able to balance the needs for economic growth and price stability.
The next few months are crucial in Bangladesh’s currency strategy, as long as inflation is high.
As new information becomes available, this post Bangladesh central banks raises policy rate by 10% in order to fight soaring inflation could be updated.
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