Can Bangladesh Bank’s New Monetary Policy Tame Inflation in 2025?

Introduction

Over the last few years, one of the long-lasting problems of Bangladesh has been inflation. Supply chain breakdown is being experienced globally, depreciation of its currency and increasing cost of imports are suffocating the economy, so the central bank must set the house in order. Bangladesh Bank launched a fresh daring monetary policy in the year 2025 to help reduce inflation. However, the question arises, whether it will work?

What the New Monetary Policy has?

The following are the main measures that have been taken by Bangladesh Bank through a contractionary monetary stance:

• Policy interest rate increase: It has increased the repo rate to curtail the liquidity.
  
• Strict limitation of the growth of credit in the private sector.
  
• Crawling peg exchange rate system prevailed to stabilize the taka against the USD
  
• Inflation targeting: it is concerned with reducing inflation to single digits.
  

• Dissuading importation that is not necessary with the aim of minimizing the burden of forex reserves.
  

The Justification of using this Approach?

Its new strategy is based on IMF recommendations and is supposed to be as follows:

• There is a restraint of inflationary pressure
  
•  Increase trust in the investor
  
• Enhance external equilibrium
  
• Stabilization in macroeconomics
  

Will It Work?

There are some factors which determine the success:

- Price dynamics in the world: In case of reduce of global fuel and commodity prices, policy effect will be quicker.

- Political stability in the period of implementation

- Coordination with the fiscal policy particularly subsidies and the government expenditure

- Banking sector reaction-in the event banks transmit increased interest rates loans can come to a halt

Risks & Challenges

• It is possible that small businesses could suffer because of higher interest rates
• Faster growth of credit may lessen job creation 
  
• Unpopularity can increase in case of the failure of the current prices to drop rapidly
  

Conclusion

It is the right direction taken by Bangladesh Bank in terms of new monetary policy. It gives a clear indication of discipline and reform. It will actually make a difference, but only with proper implementation, world events, and business-side, and the end-consumer reaction. This policy can only be the bold move which Bangladesh needs, however, well managed since it is venturing through a difficult international economic environment.