As Bangladesh approaches its February 12 general election, the next government faces a stark warning: stubborn inflation, soaring prices of essentials, and fragile investor confidence threaten to test its economic stewardship from day one.

Rising living costs, driven primarily by food inflation, are squeezing middle- and lower-middle-income households. At the same time, slowing private investment and weak inflows of fresh foreign capital are intensifying concerns over the country’s growth prospects.

Private investment growth slowed to 6.58 percent in November, down from 7.66 percent a year earlier, reflecting subdued business sentiment and a declining appetite for new capital formation. While official figures show net foreign direct investment (FDI) rising in FY2024–25, economists caution that much of the increase stems from accounting effects, such as reinvested earnings, rather than genuine new investor interest.

With fresh foreign capital remaining weak and investor sentiment fragile amid political and economic uncertainty, analysts warn that the incoming government will inherit an economy grappling with both demand compression and entrenched structural weaknesses.

Inflation has edged up for two consecutive months, reaching 8.49 percent in December, largely driven by soaring food prices. Despite more than 18 months of tight monetary policy, price pressures remain stubborn, prompting questions within Bangladesh Bank about the limits of interest-rate tools alone.

Following International Monetary Fund guidance, the central bank has raised the policy repo rate to 10 percent and maintained a fully contractionary stance, pledging not to ease until inflation falls below 6 percent. The standing lending facility rate is set at 11.5 percent, while the standing deposit facility rate remains at 8 percent.

Yet inflation has remained persistently above 8 percent, even after easing from its July 2024 peak of 11.66 percent. The slowdown in disinflation has prompted renewed scrutiny within the central bank, with its board seeking detailed explanations as to why conventional measures have failed to deliver faster results.

Economists argue that Bangladesh’s heavy reliance on monetary tightening has exposed deeper structural weaknesses, including supply-side constraints, market distortions, and prolonged capital flight through the banking system.

Dhaka University economics professor Mohammed Helal Uddin warned that maintaining high interest rates for too long risks undermining employment, investment, wage growth, and overall GDP expansion.

“Inflation in Bangladesh is not driven by demand alone,” he said. “Supply shortages, weak market oversight, and abnormal capital movements have blunted the impact of monetary policy.”

Food inflation remains the most acute pressure point, with unpredictable price spikes affecting both domestic and imported goods. Former World Bank lead economist Zahid Hussain said delayed intervention and restrictive import controls often worsen price instability.

“Prices rise quickly but fall very slowly,” he noted, highlighting exchange-rate volatility, high borrowing costs, and persistent unofficial expenses that prevent consumers from benefiting even when pressures ease.

As an import-dependent economy grappling with a lingering foreign currency crunch, Bangladesh has relied on IMF support since 2023. While inflation has moderated from double-digit levels, economists caution that prolonged contractionary policy could push the economy toward stagnation if investment does not revive.

With political transition imminent, analysts say restoring investor confidence, strengthening market oversight, and ensuring policy continuity will be critical if the next government is to stabilise prices without stifling growth.

Until political certainty and structural reforms move in tandem, they warn, Bangladesh Bank’s tools alone may not be enough to tame inflation’s persistent grip on the economy.