After a downturn, inflation-fueling high-powered money has surged again, largely negating the effect of a contractionary policy pursued by the regulator to stem price rises.
The money being injected into the market through some channels is stoking fear of higher monetary regime ahead.
Money-market experts have pinpointed several hikers, including the central bank's ongoing US dollar purchase from the market to stabilise the exchange rate, growing quasi-fiscal activities and the regulator's liquidity support to the struggling banks, which are largely contributing to the recent leaps in reserve-money growth.
Under a persistently tight monetary-policy regime adopted by the central bank to contain growing inflation, the inflow of the reserve money dropped to a negative growth of 0.12 per cent even in June last.
Since then, in a rebound, it has risen significantly in recent months, which the money-market analysts believe largely contributes to the upward trajectory of inflation over the last several months.
Apart from the regular liquidity-feeding instruments of the Bangladesh Bank, they say, the flow of subsidised credits or money injection through irregular arrangements keeps rising on the money market, which is paradoxical to the spirit of contractionary monetary-policy stance.
As a matter of fact, the BB-guided tight monetary policy is not transmitting into the money market properly and not being able to contain the inflationary pressure at the expected level, which ultimately hurts common people through curtailing their purchasing power.
According to latest BB data, the growth of the reserve money was recorded 0.12-percent negative in June last year. Afterwards, it had started leaping to 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, February and April last respectively.
Reserve money is the total amount of currency in circulation plus commercial banks' deposits held at the central bank, acting as the foundation for the entire monetary system.
It is also called "high-powered money" because it forms the foundation for the expansion of bank deposits through the money-creation process.
Seeking anonymity, a BB official says the central bank, in fact, did nothing to control the higher inflation apart from continuing a higher policy rate of 10 per cent since October in 2024.
He says, "The volume of quasi-fiscal activities by the BB through which commercial banks avail credits from the regulator at subsidised rates, ranging from 0.5 per cent to 5.0 per cent, is still quite large."
On the other hand, the central banker adds, regular government borrowing from the central bank through using ways and means, amounting to maximum Tk 120 billion, and overdraft worth maximum Tk 120 billion, goes on to operate some 119 accounts at 8.0 per cent and 9.0 per cent respectively.
The central banker informs that they had planned to downsize the ceiling of ways and means and overdraft but high-ups of the regulator turned down the proposal in view of the current macroeconomic context of the country.
"Certainly, it (reserve money growth) is a concern for all of us because it fuels inflation to some extent," he told The Financial Express.
The rate of inflation keeps rising for the last several months. According to the data with Bangladesh Bureau of Statistics (BBS), the headline inflation rose to 9.42 per cent in May 2026. The inflation rate was 9.04 per cent in the previous month of April.
Apart from growing government bank borrowing and quasi-fiscal activities, Director-General of Bangladesh Institute of Bank Management (BIBM) Dr Md. Ezazul Islam mentions that the regulator has purchased more than $6.0 billion ($6.42 billion) since July 13 last to stabilise the exchange rate and injected huge volumes of money into the market.
"These all factors contributed to the rising growth of reserve money."
But the money-multiplier effect was not too high because of lower credit demand by the private sector. The credit appetite by the entrepreneurs is expected to increase in the coming days.
"If the uptrend in reserve money continues and private-sector credit growth is enhanced, it will be an issue of serious concern in the context of a tight monetary stance," the monetary economist adds.
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