Bank Bailouts and Debt Fuel Inflation Concerns

The private sector in Bangladesh is under pressure due to persistent inflation (over 9% since March 2023), high borrowing costs, and energy shortages. Private investment has stagnated at 24% of GDP, while FDI has hit a six-year low.

The interest rates on treasury bills in Bangladesh have dropped to 10-10.35% in February 2025, down from 11.97% in December 2024, driven by higher bank investment in government securities and a reduction in the government's borrowing target.

A study titled "Microfinance Competition in the Presence of Moneylenders: Theory and Evidence" found that the presence of microfinance institutions (MFIs) in rural areas significantly lowers interest rates and reduces reliance on informal moneylenders.

Bangladesh’s commercial banks saw a modest rise in dollar holdings in January 2025, reaching $4,537 million from December’s five-year low of $4,255 million. The increase was driven by a 23.61% year-on-year growth in remittance inflows, totaling $15.96 billion for July–January FY25, and an 11.58% rise in export earnings to $28.97 billion.

Banks' excess liquid assets surged by Tk51,696 crore year-on-year, reaching Tk2.15 lakh crore in December 2024 due to weak private sector investment amid political instability. Meanwhile, excess cash declined by Tk2,291 crore to Tk17,675 crore.

Yields on Bangladesh's government securities have sharply declined in February, with rates falling nearly two percentage points since December, reaching just over 10%. In the latest auctions, banks submitted bids significantly exceeding government targets—Tk22,389 crore for a Tk4,000 crore five-year bond and Tk8,072 crore for a Tk3,500 crore 91-day bill—forcing the central bank to lower rates to 10.47% and 10.35%, respectively.