Price stability, export demand, import costs in jeopardy

Ongoing geopolitical tensions pose near-term risks to Bangladesh's price stability, export demand and import costs, the central bank says in the wake of the worst ruckus in the Mideast.
The Bangladesh Bank (BB) has painted such a picture on the economic downside in its latest Bangladesh Bank Quarterly (BBQ) report for October-December 2025, while listing upside positives, too.
"Rising geopolitical tensions -particularly the Iran-Israel-USA conflict--have already disrupted global energy and food-supply chains and may exert additional pressure on both the external balance and domestic inflation," reads the BBQ, released Wednesday.
"Proactive policy measures to maintain macroeconomic stability remain central to managing these challenges," the central bank suggests, adding that continued policy coordination and ongoing reforms in the financial and external sectors are expected to support economic resilience in the quarters ahead.
The BBQ, however, notes that the newly elected democratic government, which took office at the end of February, has initiated several measures to mitigate external risks, including efforts to diversify crude-oil-import sources and reduce reliance on the Middle East.
Ongoing conflicts in the Middle East have heightened the risk of volatility in global oil markets and exchange rates, according to the BBQ.
"For energy-importing economies like Bangladesh, rising global oil prices may incur increased import payments, thereby depleting foreign- exchange reserves and creating upside risks to inflation in the country," the regulator alerts.
On the other hand, global oil-price shock may induce the domestic currency exchange rate to depreciate, which is also inflationary in nature.
"The inflationary pressure on the economy may not ease in the coming months due mainly to the ongoing geopolitical tensions that would possibly push up overall import costs," Md. Ezazul Islam, Director- General of Bangladesh Institute of Bank Management (BIBM), told The Financial Express (FE), while replying to a query.
Dr Islam, also a former executive director of the central bank, says earnings from both exports and remittances may also face setback in the coming months if the tension prolongs further, which would accelerate the deficit in the current account of the country's overall balance of payments.
The pace of economic activity showed volatility in the first half of the current fiscal year (FY), 2025-26, with alternating quarters of stronger and relatively weaker growth.
Real GDP (gross domestic product) growth decelerated in the second quarter (Q2) of FY'26 compared to the previous quarter, while inflation remained elevated.
"Overall, the latest indicators suggest that Bangladesh's macroeconomic conditions remained broadly stable despite persistent domestic and external challenges," the central bank notes.
In the real sector, economic activity showed a mixed performance, according to the BBQ.
The central bank also says agricultural production recorded strong performance during the quarter, exceeding both official targets and the previous year's output levels, reflecting benign weather conditions and continued policy support.
In contrast, industrial activity fell considerably, recording 1.27-percent growth in the quarter under review, down from 6.82 per cent in the previous quarter, the BBQ mentions.
Services-sector activities remained robust, helping in maintaining overall economic stability.
Monetary conditions remained tight as the central bank continued its contractionary-policy stance to contain inflation and support macroeconomic stability.
The policy-rate and-interest-rate corridor remained unchanged, keeping the weighted average call money and interbank repo rates close to the 10.00-percent policy rate by the end of December 2025, according to the BBQ.
Meanwhile, the banking sector's asset quality appeared to improve during the Q2 of FY'26, as the gross non-performing loan (NPL) ratio declined to 30.60 per cent from 35.73 per cent three months before.
"However, this improvement largely reflects recent regulatory relaxation rather than a fundamental strengthening of credit quality," the BBQ explains.
The central bank also says renewed depositor confidence, steady advances amid cautious lending, and tighter monetary policy contributed to a decline in the advance-deposit ratio, reflected in the adequate liquidity position.
Regarding external sector, the BBQ says the external sector improved during the period under review, supported mainly by a surge in worker remittances, which helped the current account return to a surplus of US$476 million, reversing the $818-million deficit recorded in the previous quarter.
However, export performance weakened during the quarter, particularly in the ready-made garment sector, reflecting cautious demand from major markets and rising global trade tensions, the central bank notes.
At the same time, import payments remained broadly contained amid subdued domestic demand and moderate investment activity. As a result, the trade deficit widened slightly.

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