SOHEL PARVEZ

“Excessive prices”

Few phrases have dominated public discourse in Bangladesh over the past several years as much as these two words. They have haunted households and policymakers alike.

The impact is felt daily. Travelling a short distance by rickshaw in Dhaka for Tk 10 is a thing of the past. A bundle of leafy vegetables for Tk 10 requires hard bargaining with the floating vendor in neighbourhood alleys. Prices have risen so much that Tk 100 vanishes into a vegetable bag soon after it comes out of the wallet.

For a four-member family, keeping weekly bills for vegetables, eggs and other essentials within Tk 500 has become nearly impossible. That note now buys far less than it did two years ago. And there is no sign of prices cooling.

The Bangladesh Bank (BB) has maintained a contractionary monetary policy stance since the first half of fiscal year 2023-24 to make money more expensive and tame excess demand to curb inflation. It started raising the policy rate, or repo rate – at which it lends to commercial banks – in May 2022 and hiked it to 10 percent in October 2024. The rate is yet to come down.

Yet inflation – a measure of the increase in the prices of a basket of goods and services purchased by an average consumer – remains stubborn.

Month-on-month inflation stood at 9.42 percent at the end of May, with the 12-month average above 8.6 percent, indicating that overall inflation is likely to hover well above the BB’s target of 7 percent at the end of June this year.

This would be at least the sixth consecutive year inflation has exceeded the central bank’s targets. In FY25, average inflation hit 10 percent, more than 2 percentage points above target. The year before, it was 9.73 percent in June 2024, 2.23 percentage points above the BB’s goal.

Similarly, actual private-sector credit growth fell short of its targets set in the successive monetary policies.

In April 2026, it expanded by only 4.75 percent year-on-year, against a BB target of 8.5 percent by end-June. In April 2025, private-sector credit growth was 7.50 percent.

Public-sector credit growth, by contrast, exceeded its projected level.

The question is, why? What’s wrong with monetary policy that has failed to contain spiralling prices meaningfully, reverse sluggish demand and accelerate economic activity?

In its recent monetary policy statements, the BB attributed persistently high inflation to a combination of factors – the Russia-Ukraine war and conflicts in the Middle East, a more than 40 percent depreciation of the taka against the US dollar, and volatility in global commodity prices.

Domestically, years of a lending rate cap at 9 percent kept real interest rates negative for a while, repeated fuel and energy price hikes led to higher production and transportation costs, and government continued to borrow heavily to finance budget deficits.

This coincided with domestic production and supply disruptions caused by recurrent floods and rising inflation expectations, causing prices to trend upward.

FISCAL AND MONETARY FAILURES

Birupaksha Paul, professor of economics at the State University of New York at Cortland and a former chief economist at the BB, argues inflation has remained high “because of both fiscal and monetary failures.”