Inflation may reach 6.2 percent at the end of this fiscal year, a research firm said, though the government aims to keep the rate at 5.8 percent.

Inflation risks are tilted towards the upside due to accelerated credit flows and a likely recovery in commodity prices over the coming months, London-based BMI Research said in a report.

“We expect Bangladesh Bank to hold rates steady again at its next meeting in January,” the report said, adding: “We also highlight upside risks to inflation in the current environment of high credit growth.”

Core inflation has been increasing steadily, coming in at 8 percent year-on-year in June. “We believe that rising core inflation reflects excess credit that is not being channelled into productive investments,” it said.

In addition, the high rate of non-performing loans, which was 9.9 percent in the first quarter this year, could be exacerbated by lax credit standards and obligatory loans to inefficient state enterprises.

However, the decision to hold interest rates steady, coupled with the central bank's selective easing measures, may provide some support to growth, which the BMI forecasts at 6.5 percent year-on-year in 2016 .

The central bank's rate cut and expansion of 'selective easing' measures in January facilitated the credit growth to the private sector, which rose 5.1 percent between January and May, up from 3.7 percent during the same period of 2015. The central bank is also likely to continue with the 'selective easing' in the form of cheaper loans to targeted sectors, so that private sector credit growth remains on track for the 16.5 percent target this fiscal year.

“We believe that selective easing in specific sectors such as energy infrastructure could stimulate productive investment.”

Investment may not be sufficient in such sectors if left entirely to the private sector, it said. At the same time, selective easing is also targeted at export sectors as businesses may be facing cash flow troubles amid weak global demand.

“We maintain our real growth forecast of 6.5 percent year-on-year at the end of 2016.”

However, the report said, if selective easing measures are maintained for an extended period, loose credit standards could result in a misallocation of capital towards unproductive enterprises in the economy.