Bangladesh Bank likely to preserve current FX regime: Moody’s

Bangladesh Bank likely to preserve current FX regime: Moody’s

Moody’s Affirms Negative Outlook on Bangladesh’s Banking Sector Amid Economic Pressures

Moody’s Investors Service has downgraded Bangladesh’s sovereign credit rating to B2 from B1, reflecting heightened risks to the country’s financial stability. The agency cited weak economic growth, persistent inflationary pressures, and political uncertainty as key factors undermining the banking sector’s resilience. This downgrade aligns with Moody’s broader negative outlook for the sector, which it attributes to deteriorating balance sheets of lenders amid a challenging macroeconomic environment.

The rating agency emphasized that Bangladesh’s banking system faces mounting strains, including elevated non-performing loan ratios and constrained liquidity, exacerbated by high inflation and volatile capital flows. These challenges are compounded by political instability, which Moody’s noted could further disrupt policy continuity and investor confidence. Despite these headwinds, the agency suggested that the Bangladesh Bank is likely to maintain its current foreign exchange (FX) regime to stabilize markets and preserve reserves.

The central bank’s FX policies have historically prioritized managing inflation and ensuring adequate foreign currency availability, a strategy Moody’s views as critical to mitigating short-term risks. However, the agency warned that without structural reforms to address fiscal imbalances and boost growth, the banking sector’s medium-term outlook remains precarious.

Investors are advised to monitor developments in inflation control, political stability, and the central bank’s policy responses, which will shape the trajectory of Bangladesh’s financial health. For now, Moody’s B2 rating underscores the need for cautious risk management in the region’s banking ecosystem.

Word count: 300