Bangladesh Bank is set to announce a new monetary policy on Thursday for the first half of the fiscal year 2025–26, with indications that it will adopt a slightly expansionary stance to revive private sector credit, according to a senior official from the bank’s monetary policy department.

The move marks a shift from the contractionary monetary policies implemented over the past two years, which were aimed at controlling inflation but resulted in sluggish credit growth.

As of June 2024, private sector credit growth had dropped to below 7%, reflecting a tightening of liquidity amid high borrowing costs.

The central bank’s anticipated pivot comes amid growing concerns from the business community and individual borrowers, who have faced steep lending rates since the removal of the interest rate cap in May 2024. Rates climbed to as high as 15–16%, limiting access to credit and stifling economic activity.

A contractionary monetary policy typically restricts the money supply to curb inflation. While it can stabilise prices, it often leads to reduced investment and slower economic growth. The upcoming policy is expected to ease some of these constraints by lowering key interest rates, thereby encouraging borrowing and investment.

Officials have indicated that the new policy will aim to strike a balance between containing inflation and supporting economic recovery, with the central bank prioritising liquidity support to the private sector without undermining macroeconomic stability.