Bangladesh announces policy rate rise to combat inflation

By Ruma Paul

DHAKA (Reuters) - Bangladesh’s central bank said on Tuesday it would raise its key interest rate by half a percentage point, its fourth hike this year as it battles stubbornly high inflation.

The decision comes amid rising inflationary pressures, exacerbated by recent political unrest and challenges facing the country’s crucial garments industry.

The central bank said it would raise the repo rate, which it uses to inject money into the banking system, by 50 basis points to 10%, which will take effect from Oct. 27.

The upper limit of the policy interest corridor, the Standing Lending Facility, will rise by 50 basis points to 11.50%, while the lower limit, the Standing Deposit Facility, will rise by 50 basis points to 8.50%.

Bangladesh Bank’s governor, Ahsan H. Mansur, appointed in August, has said that while inflation is expected to decrease significantly over the next year, reducing interest rates may take longer.

Mansur was appointed by Bangladesh's interim government led by Nobel-prize winning economist Muhammad Yunus that was sworn in following the ouster of Prime Minister Sheikh Hasina, who fled to India on August 5 after a violent uprising against her.

Despite a slight decrease in the general inflation rate in September, food inflation remains stubbornly high, exceeding 12%, which is hitting the country's 170 million people hard.

The interim government has sought $5 billion in financial aid from international lenders to stabilise its dwindling foreign exchange reserves and revive the economy, which was one of the fastest-growing in the world just a few years ago.

The country has been struggling to pay its bills due to more costly fuel and goods imports since the 2022 war in Ukraine, forcing the South Asian country to seek a $4.7 billion bailout from the International Monetary Fund.

(Reporting by Ruma Paul; Editing by Christina Fincher)