The chief economist at Bangladesh Bank has publicly acknowledged the limitations of contractionary monetary policy in bringing down persistently high inflation, signaling a nuanced view on the central bank's current strategy.
The admission comes as the country grapples with price pressures that have remained stubbornly high for more than three years, raising questions about the efficacy of interest rate hikes as a standalone solution.
The economist noted that while tight monetary policy has succeeded in keeping real interest rates positive and close to their estimated natural levels, it faces diminishing returns in curbing inflation on its own.
This perspective suggests that the central bank may be looking beyond traditional rate tools to address the root causes of price instability, which often include supply-side constraints and fiscal pressures.
Bangladesh Bank has previously indicated that it expects inflation to ease further in the coming months, attributing this outlook to the sustained restrictive stance.
However, the recent comments underscore the risk that policy credibility could be undermined if inflation does not respond as expected to monetary tightening.