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“The government has increased its borrowings to one of the highest levels, which is inflationary. On the other hand, the central bank’s liquidity support to cash-hungry banks is also inflationary. These two channels are thwarting monetary tightening with high policy rates,” he said.

The BB has so far provided Tk 75,903 crore in emergency liquidity assistance to banks facing cash shortages as of June 6, Finance Minister Amir Khosru Mahmud Chowdhury told parliament last week.

Meanwhile, the government’s net borrowing from the banking system surged more than threefold to Tk 1,04,410 crore during July–April of FY26, from Tk 30,405 crore a year earlier.

Birupaksha said high interest rates have also contributed to limited credit growth, while its weakness also stems from institutional failures such as non-inclusive politics, extortion by political thugs, and the poor law and order situation.

“The government failed to stimulate business confidence by adequately supporting the closed or vandalised mills and factories. It’s a new type of fiscal-monetary trap that adds fuel to inflation and delivers a damper to private credit growth,” he said.

INFLATION IS NOT DEMAND-DRIVEN

Fahmida Khatun, executive director of the Centre for Policy Dialogue (CPD), has a different reading.

She argues monetary policy has had limited success in achieving its key objectives for several reasons, primarily because inflation has not been driven by demand.

“Supply-side disruptions, exchange rate depreciation, higher import costs, and inefficiencies in domestic markets have all played a major role. Monetary policy, on its own, cannot easily solve this,” said Fahmida, also a director on the BB’s board.

For private-sector credit, she said high borrowing costs are only a part of the story. Weak investor confidence, energy shortages and policy uncertainty are also responsible.

“That is why we have seen earlier that when companies are reluctant to invest due to the lack of an enabling environment, simply adjusting interest rates is unlikely to generate the desired increase in private credit,” she said.

According to her, monetary policy should be supported by prudent fiscal policy and broader structural reforms that improve the investment climate, ease supply constraints, and strengthen market competition. “Without such policy coordination, bringing inflation under control while also stimulating investment and growth will remain a difficult balancing act.”

UNFAVOURABLE CIRCUMSTANCES

Deen Islam, professor of economics at Dhaka University, said the latest monetary policies of the BB failed to achieve their objectives not only due to the inadequacy of the policy rate but also owing to unfavourable circumstances.

“It should be noted that the rise in prices was caused mostly by supply-side factors, higher import prices, exchange rate effects, and market rigidity, whereas the banking sector was too weak to transmit policy signals effectively,” he said.

At the same time, private credit remained subdued because both banks and borrowers became cautious.

“Therefore, the next monetary policy should not only announce a rate stance; it should explain the transmission strategy: how BB will anchor inflation expectations, restore credit discipline, support productive lending, coordinate with fiscal policy, and rebuild confidence in the banking system,” he added.