IMF Staff Country Reports

This Selected Issues paper discusses policy options and trade-offs in Bangladesh. After a prolonged period of stable inflation, Bangladesh is experiencing a bout of persistently high inflation since the beginning of Russia’s war in Ukraine. Bringing inflation down and restoring macroeconomic stability requires a balancing act between managing inflation and growth. This analysis applies a semistructural Quarterly Projection Model to assess the drivers of the recently elevated inflation in Bangladesh and evaluate different policy options in taming inflation, as well as trade-offs involved with these policy choices. Analysis suggests that a concerted but carefully calibrated tightening of the monetary policy stance will be needed to bring inflation down to Bangladesh Bank’s target range. While concurrent fiscal policy consolidation could aid a faster disinflation process, it could lead to disproportionately substantial output costs as the Bangladesh economy is operating at below potential and navigating multiple external shocks. Ongoing reforms to modernize monetary policy framework could reduce the economic volatility and costs associated with navigating periods of significant exchange rate pressures and heightened inflation.