We are publishing our macroeconomic outlook for the second half of 2024, building on our previous forecasts for the first half of 2024 and previewing the upcoming monetary policy. Bangladesh Bank (BB) is scheduled to announce its monetary policy in July 2024. In line with IMF recommendations, BB is expected to unveil a continued contractionary monetary policy focusing on taming inflation.

• Recap of Last Six Months: In the first half of 2024, inflation persisted above 9.6%, driven by increased energy prices, a 6% upfront currency depreciation following the implementation of the crawling peg, and delayed monetary tightening measures. The government also projected negative expenditure growth for FY2024-25, tightening the belt in line with monetary tightening. These steps, aligned with IMF recommendations, led to the approval of a USD 1.15 billion third tranche of the IMF loan in June.
• Inflation: CAL expects inflation to decline gradually due to ongoing monetary tightening. The expected ease in inflation is likely to be driven by a slowdown in new inflation creation and a favorable base effect of the Consumer Price Index (CPI) starting in August. However, further energy tariff hikes and currency depreciation will keep inflation elevated within the higher end of our forecast range.
• Interest Rate: CAL projects 1-year treasury bill rates to be 12.5%-13.5% by December 2024, driven by a policy rate hike of 25-50 basis points and normalized government borrowing from the banking sector. A higher policy rate differential due to monetary easing in developed economies and rising real interest rates due to the gradual easing of inflation will likely prevent further hikes. However, lending rates may exceed 15.5%, constraining private-sector credit growth and increasing the risk of Non-Performing Loans in the banking system.
• Exchange Rate: CAL expects the BDT to stabilize between 120-125 against the USD by December 2024, contingent upon allowing the crawling peg to adjust to market conditions. A 7.3% currency depreciation since the crawling peg implementation and high interest rates should curb import growth, while export growth due to monetary easing cycles in Europe and the US will narrow the FY2024-2025 current account deficit. We do not expect any significant strain on the forex reserves even after the expected debt repayment of USD 4.5 billion in FY2024-25, considering our track record of raising foreign debt of USD 7.5 billion on average in the last five years.