A credible economic strategy amid narrowing choices

By the Editorial Team · Wednesday, September 23, 2026

Central banks including the US Federal Reserve, European Central Bank, and Bank of Japan have raised interest rates recently to counter inflation pressures driven by energy market disruptions, while Bangladesh’s central bank lowered its rate for the first time in six years amid inflation concerns. Bangladesh faces significant economic challenges from high import costs, rising borrowing expenses, and a weakened banking sector, making IMF negotiations and targeted policy reforms crucial to stabilizing its financial outlook.

In recent weeks, central banks around the world have taken diverging stances on monetary policy, reflecting shifting global economic conditions and differing domestic challenges. Between early September and mid-month, the US Federal Reserve raised its target interest rate range to 3.75-4 percent for the first time since July 2023. Similarly, the European Central Bank increased its deposit rate to 2.5 percent on September 10, and the Bank of Japan followed suit on September 18, raising its policy rate to approximately 1.25 percent. In contrast, the Bank of England chose to maintain its current rates, although a third of its decision-making committee favored tightening measures. Meanwhile, Bangladesh’s central bank took the opposite approach, lowering its repo rate to 9.5 percent starting August 2, marking the first reduction in six years amid inflation pressures.

The moves by major central banks are not primarily driven by surging domestic demand—as core inflation in the US and eurozone stands around 2.4 and 2.1 percent respectively—but rather by efforts to counter potential price effects stemming from ongoing energy market shocks. Elevated oil prices, driven by disruptions such as those affecting shipments through the Strait of Hormuz, have kept Brent crude near $104 per barrel, exerting upward pressure on headline inflation figures.

The broader global context presents significant challenges, particularly for economies like Bangladesh, whose financial systems and external balances are sensitive to dollar-denominated costs. Bangladesh faces a substantial import bill, including high-priced spot liquefied natural gas (LNG), which trades at nearly ten times the US benchmark price. This has contributed to a trade deficit reaching $27.3 billion for the fiscal year 2025-26. Compounding this situation, the US 10-year Treasury yield recently approached 5 percent, increasing borrowing costs worldwide and raising the expense of financing domestic infrastructure projects critical to reducing reliance on imported energy.

The Bangladeshi taka has remained relatively stable against the US dollar, supported by gross reserves exceeding $36 billion and robust remittance inflows, which topped $35 billion recently. However, uncertainty persists due to expectations of sustained high US interest rates through 2027 as signaled by the Federal Reserve, limiting depreciation as a policy option. This constraint is intensified by rising input prices, increased financing costs, and substantial tariffs on garment exports that weigh on Bangladesh’s export competitiveness.

The country’s banking sector also faces significant stress, with classified loans reaching a record Tk 6.07 lakh crore as of June, representing nearly one-third of outstanding loans. Capital shortfalls affect over a third of banks, with the system-wide capital adequacy ratio dipping below regulatory minimums. These weaknesses limit the central bank’s ability to raise interest rates without risking further deterioration of bank balance sheets. Fiscal policy is similarly constrained as debt servicing consumes a significant portion of government revenue, while revenue growth targets remain ambitious compared to recent trends.

Against this backdrop, experts emphasize the importance of completing negotiations with the International Monetary Fund to secure program endorsement, which is seen as critical for maintaining external financing and stabilizing market expectations. Accurate reporting of gross reserves and allowing appropriate exchange rate adjustments without excessive intervention are recommended to avoid reserve depletion and currency crises. Additionally, measures to reduce reliance on volatile spot energy purchases through hedging and efficiency improvements, alongside a shift from universal subsidies to targeted support, are advised. Improving formal remittance channels to compete with informal alternatives and accelerating banking sector reforms, including conditional recapitalization tied to governance improvements, are also highlighted as priorities.

Overall, Bangladesh’s policy options are constrained by banking sector fragility, limited fiscal space, and external vulnerabilities. Nonetheless, experts argue that credible policy sequencing and consistent communication, combined with external financial support, can enable more effective management of these challenges without requiring additional resources.

This article was reported by synthesizing coverage from multiple independent news outlets to present a balanced, unbiased account. Read about our editorial standards. Spotted an error? Let us know.