Significant reversal of high-powered money entering the market has considerable heightened worries about rising inflationary pressure on households and the broader economy. Money-market analysts cite multiple causes, notably the central bank’s expanding quasi-fiscal operations and the regulator’s provision of liquidity to distressed banks, which have driven the latest recent surges in reserve-money growth.
Under a tight monetary-policy regime, the inflow of reserve money dropped to a negative growth of 0.12 per cent in June 2025. However, it has risen significantly in recent months, with growth recorded at 2.52 per cent, 3.47 per cent, 9.23 per cent, 13.35 per cent, and 14.39 per cent in July, September, December 2025, February, April, and June this year, respectively.
Reserve money, also known as “high-powered money,” is the total amount of currency in circulation plus commercial banks’ deposits held at the central bank. It forms the foundation for the expansion of bank deposits through the money-creation process. The growth in reserve money has been rising, with the latest figure standing at 17.86 per cent in August this year.
A central bank official, seeking anonymity, said the central bank has done nothing to control higher inflation apart from maintaining a higher policy rate of 10 per cent since October 2024. The official noted that the volume of quasi-fiscal activities by the central bank, through which commercial banks avail credits at subsidised rates, is still quite large.
The central banker added that regular government borrowing from the central bank and overdraft facilities continue to operate at interest rates of 8.0 per cent and 9.0 per cent, respectively. The official expressed concern that the reserve money growth is fueling inflation to some extent.
Considering possible spikes in inflation following the latest upward revision of fuel prices and reserve-money growth, the central banker said the banking regulator has decided not to cut the policy rate until December next. The policy rate currently stands at 9.50 per cent. Overall inflation in Bangladesh eased slightly to 8.26 per cent in August 2026, down from 8.32 per cent in July.
Director-General of Bangladesh Institute of Bank Management Dr. Md. Ezazul Islam pointed out that the regulator has purchased over US$6.0 billion since July 13 last year to stabilise the exchange rate, injecting huge volumes of money into the market. These factors have contributed to the rising growth of reserve money. However, the money-multiplier effect was not too high due to lower credit demand by the private sector.
Dr. Islam noted that if the uptrend in reserve money continues and private-sector-credit growth gets enhanced, it will be an issue of serious concern in the context of a tight monetary stance. The credit appetite of entrepreneurs is expected to increase in the coming days, which could further fuel inflationary pressure.
