Bangladesh Bank today raised the policy rate by 75 basis points to 7.25 percent as part of an aim to tame the skyrocketing inflation.

The new policy rate or repurchase agreement (repo) rate will be applicable from tomorrow, a senior official of the central bank told The Daily Star.

The monetary policy committee of the Bangladesh Bank took the decision in an emergency meeting presided over by Governor Abdur Rouf Talukder.

In June this year, the banking regulator had earlier raised the policy rate by 50 basis points to 6.50 percent.

Ahsan H Mansur, executive director of the Policy Research Institute, said the policy rate hike will work only if the central bank allows the lending rate to move up.

"Otherwise, it will not be able to curb the inflationary pressure."

He thinks the policy rate will have to be raised gradually for several months in a bid to tame the inflation rate and stabilise the exchange rate.

The rising interest rate may hurt investments but the former official of the IMF says now the main target should be bringing down the inflation rate to a reasonable level and making the exchange rate stable.