RCL Monetary Policy Analysis FY’26 (H1)
RCL Monetary Policy Analysis FY'26 (H1)
The Monetary Policy Statement (MPS) for July-December FY2026 reflects a cautious strategy by the central bank to control inflation, stabilize the exchange rate, and restore financial stability amidst rising non-performing loans. The MPS sets a real GDP growth target of 5.5% for H1FY26 and an inflation target of 6.5-7%. The policy rate (repo rate) remains unchanged at 10% to help keep inflation down while balancing fiscal targets. The Standing Deposit Facility (SDF) rate was reduced to 8% to help revitalize the inter-bank call-money market.
Key Economic Projections
Domestic Credit: 10%
Private Sector Credit: 7.2%
Public Sector Credit: 20.4%
The public sector credit growth target is a substantial increase from the 13.6% actual growth in FY25, attributed to the government’s higher credit demand to meet spending needs. The government’s budgetary target for borrowing Tk. 1,040.0 billion from the banking system was also a factor. Reserve money is set to grow by 5%. Inflation, which peaked at 11.66% in July 2024, has steadily decreased to 8.48% by June 2025. The new target of 6.5-7% will be a “remarkable” achievement if met. The exchange rate depreciated by 3.89% in FY25, with the nominal exchange rate at 122.77 BDT/USD at the end of June 2025. Stability is expected to be bolstered by improved foreign exchange liquidity and rising remittance inflows and export growth.
Capital Market Implications
With the policy rate held stable, companies with significant debt will continue to face high interest costs, which will suppress their earnings. Conversely, companies with large cash reserves will benefit from higher returns on their deposits. The central bank plans to reduce the yield differential between assured repo for capital market financing and comparable Treasury bill rates. Additionally, the government has extended a Tk 200 crore special investment fund for capital market support until December 2026 and is implementing reforms to improve corporate governance, streamline regulations, and restore investor confidence.