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Business Initiative Leading Development (BUILD) has called on Bangladesh Bank (BB) to better align its monetary policy with the government’s expansionary fiscal policy, warning that the current contractionary stance could undermine private investment, industrial expansion and employment generation at a critical stage of the country’s economic recovery.
In a statement issued on Wednesday, the business think tank welcomed the central bank’s commitment to restoring macroeconomic stability and containing inflation through its Monetary Policy Statement (MPS) for the 2026-27 fiscal year. However, it cautioned that an overly restrictive monetary policy could work against the government’s budget objectives, which heavily depend on private sector-led investment to sustain economic growth.
BUILD noted that the national budget aims to generate around 2.5 million new jobs during FY27 through increased private investment and industrial expansion. With exports, one of Bangladesh’s key economic growth engines, currently facing negative growth, the organisation said maintaining tight monetary conditions could further discourage business expansion, weaken investor confidence and slow overall economic activity.
The organisation expressed concern over Bangladesh Bank’s projection of 6.5 percent growth in private sector credit, compared with 21.8 percent growth in public sector credit. Such a gap, it said, is likely to intensify the crowding-out effect, limiting access to financing for businesses while increasing government borrowing from the banking system.
BUILD also pointed to the fragile financial health of several large commercial banks, arguing that the government’s continued reliance on bank borrowing to finance its budget deficit is placing additional pressure on already constrained private sector lending.
The business body further observed that government securities currently offer returns about one percentage point higher than the policy rate, making them more attractive to banks than lending to private enterprises. As a result, banks are increasingly investing in risk-free government instruments rather than financing productive sectors of the economy.
According to BUILD, achieving the government’s long-term goal of raising total investment to 40 percent of GDP by FY31 will require private sector credit growth to gradually increase to at least 15 percent over the coming years.
The organisation also voiced concern over the prevailing high-interest-rate environment. It noted that the policy rate of 10 percent, the Standing Lending Facility rate of 11.5 percent and the Standing Deposit Facility rate of 7.5 percent have pushed commercial lending rates to between 14 and 17 percent.
Combined with an interest rate spread of 5.72 percent, BUILD said the elevated borrowing costs are discouraging new investment, increasing business expenses and reducing the competitiveness of domestic industries.
The organisation argued that Bangladesh’s inflation is primarily driven by supply-side constraints rather than excessive domestic demand. It cited disruptions in agricultural supply chains, market inefficiencies, exchange rate fluctuations and structural bottlenecks as the principal causes of inflation.
Although overall inflation has eased in recent months, food inflation remains above 8 percent, indicating that tighter monetary policy alone is unlikely to significantly reduce price pressures while continuing to raise financing costs for businesses. BUILD noted that the national budget itself acknowledged structural factors as key contributors to inflation.
BUILD also questioned the MPS target of 13 percent broad money (M2) growth, saying the target remains relatively high and may complicate inflation management. At the same time, the faster expansion of public sector credit could further crowd out productive private investment.
To support economic recovery, the organisation recommended that Bangladesh Bank gradually recalibrate its monetary policy as inflation moderates. It suggested progressively reducing the interest rate spread from the current 5.72 percent to around 2.5 percent, expanding access to affordable credit for Cottage, Micro, Small and Medium Enterprises (CMSMEs), exporters and manufacturing industries, and ensuring that financial resources are directed towards productive investment rather than non-productive activities.
BUILD also proposed increasing the mandatory share of bank lending to CMSMEs from the current 15 percent to at least 20 percent of total credit, arguing that easier access to finance for small businesses would strengthen employment generation and industrial diversification.
The organisation welcomed the government’s recently announced Tk 60,000 crore refinance scheme, including Tk 5,000 crore specifically allocated for CMSMEs at a maximum lending rate of 9 percent. It urged authorities to implement the programme transparently and prioritise cottage and micro enterprises that face the greatest financing constraints. BUILD further suggested temporarily lowering the interest rate under the scheme to provide additional support to existing entrepreneurs during the ongoing economic slowdown.
It also called for clear and publicly available eligibility criteria for industries seeking assistance under the government’s Tk 20,000 crore allocation for sick industries to ensure transparency, accountability and effective utilisation of public funds.
In addition, BUILD urged the government to formulate a comprehensive policy framework for the Tk 500 crore allocation for the creative economy, clearly outlining eligible sectors, beneficiaries and implementation mechanisms.
The organisation stressed that stronger coordination between fiscal and monetary policies is essential to restore investor confidence, stimulate private sector investment, generate employment and put Bangladesh back on a sustainable path of inclusive and long-term economic growth.