Bangladesh faces immediate inflation risks due to the loss of Aman paddy in some areas from adverse weather, increased spending by candidates ahead of the national election, and the upcoming month of Ramadan.

A possible announcement of a new national pay scale could also raise demand and consumer spending, according to the minutes of a recent meeting of the Monetary Policy Committee (MPC), a key panel of Bangladesh Bank (BB).

In response, the committee recommended keeping the central bank's policy rate unchanged.

The MPC said that although inflation is gradually easing and the foreign exchange market remains stable, there is a strong reason to keep the current policy to protect overall macro-financial stability and, in particular, price stability.

The recommendations came a week after the International Monetary Fund (IMF) backed continued monetary policy tightening to reduce inflation.

The BB has kept the policy rate—the rate at which it lends to commercial banks—at 10 percent for over a year to combat persistently high inflation.

While the consumer price index, which measures changes in prices of goods and services, has moderated in recent months, the annual average rose to 10.03 percent in June from 9.73 percent a year ago.

The MPC said that although inflation is gradually easing and the foreign exchange market remains stable, there is a strong reason to keep the current policy to protect overall macro-financial stability

In October, inflation fell to 8.17 percent on a point-to-point basis, down from 8.36 percent a month earlier. The annual average inflation ending in October also declined.

Core inflation, which excludes food and fuel and is closely linked to monetary policy, fell to 6.19 percent at the end of September 2025 from 8.95 percent in June, the BB said.

The IMF said the slow decline in inflation means tight monetary conditions should be maintained until inflation reaches the target range of 5-6 percent.

"The new exchange rate regime should be implemented fully, including by fostering increased flexibility," said an IMF review mission led by Chris Papageorgiou last week. "To improve monetary policy effectiveness, the authorities should continue to phase out non-standard monetary and quasi-fiscal operations."

The MPC said its members analysed the macroeconomic outlook in both domestic and global contexts. They also closely examined the inflation trend and projection, the pace of economic activity, growth prospects, financial market dynamics, and developments in the external sector.

Regarding monetary policy, the BB said it would continue a contractionary stance to reduce inflation from its current rate of about 8 percent.

This contractionary stance is reflected in the positive real policy rate, which has risen from a negative rate of around 2 percent to 1.64 percent at the end of September 2025.

The real policy rate is the central bank's policy interest rate adjusted for inflation, calculated by subtracting the inflation rate from the nominal policy rate.

The MPC observed that the weighted average call money rate fell to 9.74 percent in October 2025 from 10.01 percent in June 2024. Similarly, the interbank average repo rate declined to 9.88 percent at the end of October from 10.07 percent in June 2025.

It said monetary aggregates are on track with projections. However, private-sector credit grew at a slower pace. "This subdued growth is attributed to lower credit demand from non-bank depository corporations amid ongoing uncertainties ahead of the upcoming national election," the MPC noted.

The committee also highlighted the positive effects of the flexible exchange rate regime adopted earlier this year and stressed the importance of monitoring the US dollar index to assess the sustainability of Bangladesh's exchange rate stability.

It advised building foreign exchange reserves, strengthening market communication, and aligning intervention strategies with international best practices to maintain the competitiveness of the country's currency.