BB chief economist acknowledges limits of contractionary monetary policy in curbing inflation

Bangladesh Bank's contractionary monetary policy is facing challenges in bringing down persistently high inflation, a situation that risks undermining policy credibility and creating uncertainty for investors, BB Chief Economist Mohammad Akhtar Hossain said today.

Speaking at a session titled "Doing Business in Bangladesh" at the Bengal Delta Conference 2026, organised by the Dacca Institute of Research and Analytics at InterContinental Dhaka, Akhtar said stable prices and a predictable macroeconomic environment were essential for attracting investment and supporting business.

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Bangladesh has been grappling with persistently high inflation for more than three years, even though the BB raised the policy rate to 10 percent in October 2024 and has kept it unchanged since then.

The 12-month average inflation was 8.68 percent in June this year. It was 10.13 percent a year ago.

The BB official said prolonged high inflation has become entrenched through rising inflation expectations, making it increasingly difficult for contractionary monetary policy to bring price growth under control.

He warned that if inflation rises into double digits, it could become even more persistent, weaken confidence in the central bank, and make contractionary monetary policy less effective.

Akhtar said policymakers often attribute inflation to supply shocks, supply chain disruptions, wars, and other external factors. While these issues matter, an excessive focus on them risks diverting attention from monetary policy and reducing its effectiveness in containing inflation, he added.

He noted that businesses dislike uncertainty, whether it stems from inflation, economic conditions, or government policies, because it makes investment decisions more difficult.

To restore confidence, Bangladesh should adopt a credible, rules-based monetary policy framework aimed at maintaining low and stable inflation over the long term, Akhtar said.

Such a framework could be based on inflation targeting, monetary targeting, or another transparent policy rule, provided the central bank remained committed to achieving its stated objective.

He also said maintaining macroeconomic stability, alongside fiscal and banking sector reforms, would be critical to improving the business environment in Bangladesh.