Bangladesh Bank keeps rates on hold as it weighs growth, inflation risks

Bangladesh Banks, the central bank of the country, left interest rates unchanged on Wednesday, with governor Fazle Kabir saying it aimed to achieve record economic growth while curbing inflationary pressures.

Kabir said policy would aim to keep average inflation within 5.5 per cent in the 2019/20 financial year that started in July, while achieving the government’s record 8.20 per cent growth target.

The bank left the policy repo rate at 6.00 per cent and the reverse repo rate at 4.75 per cent.

The central bank would closely monitor risk factors, including the China-US trade dispute and geopolitical tensions, Kabir said.

"Ongoing global trade war and geopolitical tensions are uncertainties in the external front that may or may not impair attainment of the Bangladesh Bank's monetary programme outcomes," he said.

The governor, however, expects growth both in exports and in remittances from Bangladeshis working overseas, which are the main drivers of the country's $250 billion economy.

Exports rose 10.55 per cent to $40.5 billion in the fiscal year ended in June, driven by stronger garment sales.

The central bank cut the private sector credit growth target to 14.8 per cent for the current financial year from 16.3 per cent last year.

Kabir said a recent gas price increase and a new value-added tax could have an impact on inflation while prolonged monsoon flooding could take a toll on crops.

Average inflation was 5.47 per cent in the previous financial year, below the target, largely because of good agricultural output in the South Asian country of 160 million people.

Severe flooding has killed at least 120 people, affected 6 million, and inundated thousands of homes and caused severe damage to crops across Bangladesh, after three weeks of heavy monsoon rains.

The central bank last cut its repo rate in April 2018, by 75 basis points, and the Cash Reserve Requirement by 1 percentage point to 5.5 per cent, to combat a liquidity crisis in the banking sector.