Bangladesh Raises Interest Rates to Combat Inflation

(Reuters) – Bangladesh’s central bank will raise interest rates to 9% from 8.5% in the coming days to tame soaring inflation, as the bank’s governor stated in a BBC interview published early on Thursday.

The decision follows weeks of political unrest that have led to a sharp rise in inflation, which reached 11.66% in July. This comes amid ongoing challenges with shrinking reserves and a downturn in the garments industry, a key sector of the economy.

Ahsan H. Mansur, the newly appointed governor of Bangladesh Bank, indicated that rates could rise further to 10% or more in the coming months.

Mansur, who was appointed just a week ago, has suggested that while inflation should decrease significantly within the next year, a reduction in interest rates may take longer.

He was appointed by Bangladesh’s interim government led by Nobel-prize winning economist Muhammad Yunus, following the ouster of Prime Minister Sheikh Hasina, who fled to India after a violent uprising.

Additionally, Mansur mentioned ongoing discussions with the International Monetary Fund (IMF) to secure an extra $3 billion in support. The IMF had previously approved a $4.7 billion loan program in January 2023.

The country is also seeking $1.5 billion from the World Bank and an additional $1 billion each from the Asian Development Bank and the Japan International Cooperation Agency.

In the year ending June 30, the World Bank had total commitments of $2.85 billion to Bangladesh, which boasted one of the world’s fastest-growing economies just a few years ago.