Bangladesh Market Sees Mixed Trends as Inflation Eases Slightly

Dhaka, Bangladesh — Bangladesh’s financial markets displayed a mixed performance this week, as official data showed a marginal easing of inflation for the first time in several months, offering cautious optimism to traders and consumers alike. The Dhaka Stock Exchange (DSE) experienced moderate gains in early trading sessions, driven by renewed investor interest in textile and pharmaceutical sectors, before profit-taking trimmed some of the advances by the weekend.

The Bangladesh Bureau of Statistics reported on Wednesday that the point-to-point inflation rate for January stood at 9.58 percent, down from 9.74 percent in December. While the decline is modest, it marks the first dip since September last year, when inflation peaked at 9.8 percent. Food inflation eased to 9.54 percent from 9.66 percent, while non-food inflation dropped to 9.63 percent from 10.07 percent. Analysts attribute the slight improvement to stable global commodity prices and a relatively steady exchange rate for the Bangladeshi taka against the US dollar, which has hovered near Tk 110 per dollar in recent weeks.

“The easing is a positive signal, but we are not out of the woods yet,” said Dr. Shahidul Islam, an economist at the Bangladesh Institute of Development Studies. “Core inflation remains sticky, and the central bank’s tight monetary policy is still needed to anchor expectations.” The Bangladesh Bank has maintained its repo rate at 8.5 percent since December, after a series of hikes throughout 2023 aimed at curbing demand-pull inflation.

On the DSE, the benchmark DSEX index rose 1.2 percent over the week to close at 6,245 points on Thursday, recovering from a dip earlier in the month. Market capitalization increased by approximately Tk 8,000 crore, reaching Tk 7.2 lakh crore. The textile sector led the rally, with shares of major exporters gaining up to 3 percent amid news of higher export orders from European buyers. The pharmaceutical index also climbed 1.8 percent, supported by strong earnings reports from several leading drug manufacturers.

However, the broader market sentiment remains cautious due to ongoing liquidity constraints in the banking sector. The interbank call money rate averaged 8.9 percent this week, up from 8.7 percent last month, reflecting tight cash conditions. Banks are facing pressure from rising non-performing loans, which reached 10.2 percent of total loans in December, according to central bank data. This has led to reduced lending appetite, particularly for small and medium enterprises.

In the currency market, the taka remained relatively stable against the dollar, trading at Tk 109.95 in the interbank market on Thursday, compared to Tk 110.10 a week earlier. The Bangladesh Bank intervened occasionally to smooth volatility, selling an estimated $50 million from reserves, which now stand at approximately $22 billion, down from $24 billion a year ago. Remittance inflows, a key support for the foreign exchange market, rose 15 percent year-on-year in January to $2.1 billion, driven by higher flows from Bangladeshi workers in the Middle East and Southeast Asia.

Internationally, Bangladesh’s export sector received a boost from the European Union’s decision to extend its Everything But Arms trade preference scheme for least developed countries until 2029. The move, announced earlier this week, ensures duty-free access for Bangladeshi goods, particularly ready-made garments, which account for over 80 percent of exports. However, industry leaders warn that compliance with new EU sustainability and labor standards could raise production costs. “The extension is welcome, but we must invest in green factories and worker safety to maintain our competitive edge,” said Faruque Hassan, president of the Bangladesh Garment Manufacturers and Exporters Association.

Looking ahead, market participants are closely watching the upcoming national budget, expected in June, for signals on tax reforms and infrastructure spending. The International Monetary Fund, which approved a $4.7 billion loan program for Bangladesh in 2023, has urged the government to phase out energy subsidies and broaden the tax base. Analysts predict that the stock market may remain range-bound in the near term, with inflation and monetary policy decisions as key drivers. For now, the slight easing in prices offers a glimmer of relief, but sustained recovery will require broader structural reforms.