BB model sees inflation surpassing its FY27 ceiling

The Bangladesh Bank’s (BB) own inflation model is running well ahead of its own expectations, projecting price growth near 9 percent through mid-2027, even as its official ceiling sits at 7.5 percent for the upcoming fiscal year 2026-27, according to BRAC EPL Stock Brokerage.

BB’s model puts inflation at 8.9 percent by December 2026 and 8.6 percent by June 2027, the brokerage said in its Macroeconomic Report by BRAC EPL Stock Brokerage published on June 30, after the announcement of the BB’s monetary policy.

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The gap suggests the ceiling functions more as a policy ambition than a base-case forecast, it said.

In its latest monetary policy for the second half of the year, the central bank has kept its policy rate unchanged at 10 percent, along with the Standing Lending Facility (SLF) at 11.5 percent and the Standing Deposit Facility (SDF) at 7.5 percent.

The stance remains contractionary, with the central bank adding targeted credit stimulus rather than broad-based rate easing, the BRAC EPL report said.

The policy message is to keep the rate anchor tight to contain inflation and foreign exchange (FX) risk, while using targeted credit channels to address weak private investment and employment pressure, the report said.

The rate hold indicates BB is prioritising policy credibility over near-term growth over near-term growth acceleration, according to the report.

The central bank is effectively saying that inflation is still too high, FX stability is too important, and expectations are too fragile to justify a repo cut, the report added.

A cut is unlikely to be credible until inflation expectations move decisively below 8 percent and food and non-food price stickiness breaks, an analyst cited in the report said.

It went on to comment that the BB’’s monetary policy effectively confirms that Bangladesh’s inflation problem is now structural and supply-heavy, not merely monetary.

BB has attributed inflationary pressure to the political transition, floods, global commodity shocks, exchange-rate realignment, domestic market frictions, administered fuel-price adjustments, and Middle East-related energy and fertiliser shocks.

Alongside the rate hold, BB is pursuing non-monetary measures to support economic activity, including the Bangla QR rollout, strengthening the bad-asset clean-up process, and stolen-asset recovery, the report said.

Key macro risks flagged in the report include sticky supply-side inflation, fiscal dominance, weak private-sector credit, elevated non-performing loans (NPLs), and the sustainability of remittance-led external stability.

The next stage of disinflation, the report added, will depend as much on trade policy, market monitoring, energy supply, import facilitation, and agricultural logistics as on the policy rate.