Bangladesh to raise policy interest rate from next week to fight prices

By Arun Devnath and Kai Schultz

Bangladesh’s central bank plans to increase its policy interest rate by half a percentage point next week, aiming to fight inflation that has surged to its highest level in over a decade, according to the authority’s newly-appointed Governor Ahsan H. Mansur. 
 

A 50-basis point increase will take the policy interest rate to 9%, and Bangladesh Bank plans to tighten it further in the coming months.

“The already tight monetary stance may have to be tightened a little bit further, so we are considering a further increase in the policy rate in the coming months,” Mansur said in an interview in Dhaka Thursday. “Inflation is our number one challenge.”

The South Asian nation, currently grappling with a severe political turmoil and governed by an interim administration, saw its consumer price index surge to 11.66% in July despite a 50-basis point rate increase in May.

“I cannot forecast where I will have to stop. But I know that in the next two to three months, we have to increase further and see how the inflation reacts to the policy change,” Mansur said. “You give the dose depending on the severity of the problem.”

Mansur was appointed as governor on Aug. 13 by the interim government headed by Nobel Prize-winning economist Muhammad Yunus. His predecessor Abdur Rouf Talukder was forced to resign by protesters after former Prime Minister Sheikh Hasina fled the country earlier this month.

The weeks-long violent protests that killed more than 600 people pushed Bangladesh into an economic crisis. The country with already dwindling foreign exchange reserves is in an urgent need for a bailout from creditors. The interim government is in talks for securing more loans from the International Monetary Fund, beyond a $4.7-billion program to tide over the economic hardships.

Mansur, who served in the IMF for nearly three decades, had previously told Bloomberg that his main goal would be to “target the non-food inflation” even as food prices were “very volatile.”