Global rating agency Fitch Solutions has issued a cautious outlook for Bangladesh’s economy, citing persistent inflation, currency depreciation, and political uncertainty.

In its latest report, Fitch forecasts Bangladesh’s headline inflation to average 8.5% for the current fiscal year, exceeding the central bank’s target of 7-8%. The agency also plans to lower its earlier 5.5% GDP growth projection for FY 2024-25.

Despite Bangladesh Bank maintaining its policy rate at 10%, Fitch warns inflation will remain high due to political instability surrounding upcoming elections. It also deems the central bank’s target of 5% inflation for FY 2025-26 as overly optimistic, projecting instead an 8.5% average.

Further depreciation of the taka is expected, with a potential 15% decline in 2025. The shift to a market-determined exchange rate and slower-than-expected US interest rate cuts will contribute to this weakening.

Private sector credit growth has already slowed to 7.3% in December, the lowest since 2015, while real wages continue to decline, dampening consumer spending.

Fitch also anticipates Bangladesh’s general elections may occur earlier than previously expected, raising concerns over potential political unrest. With increased competition between political parties, tensions could escalate, impacting economic stability.