60816069 MACRO Economics Assignment

8/10/2019 60816069 MACRO Economics Assignment

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Monetary policy of Bangladesh MGT-301

Name of Grop Mem!ers

"#erpetal$

Serialo

a#e Rollo

1 Ra#an!l )hsan 02

2 Md& Mas!d *ar,e 14

3 Md& )fal!r Rah#an 31

5 Safayet Rah#an 43

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%etter of &ransmittal

%r& 'ar!( )h#ed*rofessor+%epart#ent of Manage#ent St!dies+Uni,ersity of %haa&

S!"ect$S!"#ission of assign#ent papers&

%ear Sir+6t is an honor and great pleas!re for !s to s!"#it o!r assign#ent on#onetary policy of Bangladesh& This assign#ent 7as assigned to !s asco#p!lsory re(!ire#ent of the co!rse Macroecono#ics 8co!rse 3019 inthe :thse#ester&

%!ring the process of preparing o!r assign#ent+ 7e had the chance of

e;periencing and redisco,ering o!r potentials& This assign#ent ga,e !san opport!nity to apply o!r theoretical e;pertise+ sharpen o!r ,ie7s+ ideasand co##!nication sills+ 7hich 7ill help !s in o!r f!t!re professionalcareer&

Thaning yo! and looing for7ard to recei,e yo!r cordial appro,al ofo!r s!"#ission&


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&a!le of Content

Monetary policy of Bangladesh

No' #art () "#rologe$ #age No'

1& O,er,ie7 of the topics 0:

2& %efinition of #onetary policy$ 0=

3& >istory of #onetary policy 0?

5& Monetary policy theory 04

:& Types of #onetary policy 11

=& O"ecti,es of #onetary policy$ 1:

?& Tools !sed in deter#ining the #onetary policy 1:

@& %e,eloping co!ntries 1=

#art (* "Economic state of B+$

1& 6ntrod!ction 1?

2& Bangladesh $ The Econo#ic perfor#ance 20

3& %e,elop#ent challenge 2:

#art (, "Monetary policy statement$

1& 6ntrod!ction 2?

2& Macroecono#ic de,elop#ent $o!tco#e and o!tloo 2?

3& Monetary policy stance 31

5& Bi"liography 35

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e;ec!ti,e& 6n general+ these instit!tions are called central "ans and often ha,e other

responsi"ilities s!ch as s!per,ising the s#ooth operation of the financial syste#&

The pri#ary tool of #onetary policy is open #aret operations& This entails #anaging

the (!antity of #oney in circ!lation thro!gh the "!ying and selling of ,ario!s credit

instr!#ents+ foreign c!rrencies or co##odities& )ll of these p!rchases or sales res!lt

in #ore or less "ase c!rrency entering or lea,ing #aret circ!lation&

Us!ally the short ter# goal of open #aret operations is to achie,e a specific short

ter# interest rate target& 6n other instances+ ho7e,er+ #onetary policy #ight instead

entail the targeting of a specific e;change rate relati,e to so#e foreign c!rrency or

else relati,e to gold& 'or e;a#ple in the case of the US) the 'ederal Reser,e targets

the federal f!nds rate+ the rate at 7hich #e#"er "ans lend to one another o,ernight&

The other pri#ary #eans of cond!cting #onetary policy incl!de$ 8i9 %isco!nt

7indo7 lending 8i&e& lender of last resort9 8ii9 'ractional deposit lending 8i&e& changes

in the reser,e re(!ire#ent9 8iii9 Moral s!asion 8i&e& caoling certain #aret players to

achie,e specified o!tco#es9 8i,9 Open #o!th operations 8i&e& taling #onetary

policy 7ith the #aret9&

*' +efinition of monetary policy

Monetary policyis the process "y 7hich the go,ern#ent+ central "an+ or #onetary

a!thority #anages the s!pply of #oney+ or trading in foreign e;change #arets&

Monetary theory pro,ides insight into ho7 to craft opti#al #onetary policy&

Monetary policy is generally referred to as either "eing an e;pansionary policy+ or a

contractionary policy+ 7here an e;pansionary policy increases the total s!pply of

#oney in the econo#y+ and a contractionary policy decreases the total #oney s!pply&

E;pansionary policy is traditionally !sed to co#"at !ne#ploy#ent in a recession "y

lo7ering interest rates+ 7hile contractionary policy has the goal of raising interest

rates to co#"at inflation 8or cool an other7ise o,erheated econo#y9& Monetary policy

sho!ld "e contrasted 7ith fiscal policy+ 7hich refers to go,ern#ent "orro7ing+

spending and ta;ation&

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,' 0istory of monetary policy

Monetary policy is associated 7ith c!rrency and credit& 'or #any cent!ries there 7ere

only t7o for#s of #onetary policy$ 8i9 %ecisions a"o!t coinage 8ii9 %ecisions to printpaper #oney to create credit& 6nterest rates+ 7hile no7 tho!ght of as part of #onetary

a!thority+ 7ere not generally coordinated 7ith the other for#s of #onetary policy&

Monetary policy 7as seen as an e;ec!ti,e decision+ and 7as generally in the hands of

the a!thority 7ith seignior age+ or the po7er to coin& Aith the ad,ent of larger trading

net7ors ca#e the a"ility to set the price "et7een gold and sil,er+ and the price of the

local c!rrency to foreign c!rrencies& This official price co!ld "e enforced "y la7+ e,en

if it ,aried fro# the #aret price&

Aith the creation of the Ban of England in 1=45+ 7hich ac(!ired the responsi"ility to

print notes and "ac the# 7ith gold+ the idea of #onetary policy as independent of

e;ec!ti,e action "egan to "e esta"lished& The goal of #onetary policy 7as to #aintain

the ,al!e of the coinage+ print notes 7hich 7o!ld trade at par to specie+ and pre,ent

coins fro# lea,ing circ!lation& The esta"lish#ent of central "ans "y ind!strialiing

nations 7as associated then 7ith the desire to #aintain the nationDs peg to the gold

standard+ and to trade in a narro7 "and 7ith other gold "ac c!rrencies& To

acco#plish this end+ central "ans as part of the gold standard "egan setting the

interest rates that they charged+ "oth their o7n "orro7ers+ and other "ans that

re(!ired li(!idity& The #aintenance of a gold standard re(!ired al#ost #onthly

ad!st#ents of interest rates&

%!ring the 1@?0-1420 period the ind!strialied nations set !p central "aning

syste#s+ 7ith one of the last "eing the 'ederal Reser,e in 1413& By this point the

!nderstanding of the central "an as the lender of last resort 7as !nderstood& 6t 7as

also increasingly !nderstood that interest rates had an effect on the entire econo#y+ in

no s#all part "eca!se of the #arginal re,ol!tion in econo#ics+ 7hich foc!sed on ho7

#any #ore+ or ho7 #any fe7er+ people 7o!ld #ae a decision "ased on a change in

the econo#ic trade-offs& 6t also "eca#e clear that there 7as a "!siness cycle+ and

econo#ic theory "egan !nderstanding the relationship of interest rates to that cycle&

8e,ertheless+ steering a 7hole econo#y "y infl!encing the interest rate has often

"een descri"ed as trying to steer an oil taner 7ith a canoe paddle&9

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The ad,ance#ent of #onetary policy as a pse!do scientific discipline has "een (!ite

rapid in the last 1:0 years+ and it has increased especially rapidly in the last :0 years&

Monetary policy has gro7n fro# si#ply increasing the #onetary s!pply eno!gh to

eep !p 7ith "oth pop!lation gro7th and econo#ic acti,ity& 6t #!st no7 tae into

acco!nt s!ch di,erse factors as$

short ter# interest rates

long ter# interest rates

,elocity of #oney thro!gh the econo#y

e;change rates

credit (!ality

!ondsand e1ities8corporate o7nership and de"t9

go,ern#ent ,ers!s pri,ate sector spendingsa,ings

international capital flo7s of #oney on large scales

'inancial deri,ati,es s!ch as options+ s7aps+ f!t!res contracts+ etc&

) s#all "!t ,ocal gro!p of people ad,ocate for a ret!rn to the gold standard 8the

eli#ination of the dollarDs fiat c!rrency stat!s and e,en of the 'ederal Reser,e Ban9&

Their arg!#ent is "asically that #onetary policy is fra!ght 7ith ris and these riss7ill res!lt in drastic har# to the pop!lace sho!ld #onetary policy fail&

Most econo#ists disagree 7ith ret!rning to a gold standard& They arg!e that doing so

7o!ld drastically li#it the #oney s!pply+ and thro7 a7ay 100 years of ad,ance#ent

in #onetary policy& The so#eti#es co#ple; financial transactions that #ae "ig

"!siness 8especially international "!siness9 easier and safer 7o!ld "e #!ch #ore

diffic!lt if not i#possi"le& Moreo,er+ shifting ris to different peopleco#panies that

specialie in #onitoring and !sing ris can t!rn any financial ris into a no7n dollar

a#o!nt and therefore #ae "!siness predicta"le and #ore profita"le for e,eryone

in,ol,ed&

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adapti,e e;pectation 87age-setting "eha,ior9 and so there is higher inflation 87itho!t

the "enefit of increased o!tp!t9& >ence+ !nless credi"le anno!nce#ents can "e #ade+

e;pansionary #onetary policy 7ill fail&

)nno!nce#ents can "e #ade credi"le in ,ario!s 7ays& One is to esta"lish an

independent central "an 7ith lo7 inflation targets 8"!t no o!tp!t targets9& >ence+

pri,ate agents no7 that inflation 7ill "e lo7 "eca!se it is set "y an independent

"ody& Central "ans can "e gi,en incenti,es to #eet their targets 8for e;a#ple+ larger

"!dgets+ a 7age "on!s for the head of the "an9 in order to increase their rep!tation

and signal a strong co##it#ent to a policy goal& Rep!tation is an i#portant ele#ent

in #onetary policy i#ple#entation& B!t the idea of rep!tation sho!ld not "e conf!sed

7ith co##it#ent& Ahile a central "an #ight ha,e a fa,ora"le rep!tation d!e to good

perfor#ance in cond!cting #onetary policy+ the sa#e central "an #ight not ha,e

chosen any partic!lar for# of co##it#ent 8s!ch as targeting a certain range for

inflation9& Rep!tation plays a cr!cial role in deter#ining ho7 #!ch #arets 7o!ld

"elie,e the anno!nce#ent of a partic!lar co##it#ent to a policy goal "!t "oth

concepts sho!ld not "e assi#ilated& )lso+ note that !nder rational e;pectations+ it is

not necessary for the policy#aer to ha,e esta"lished its rep!tation thro!gh past

policy actions as an e;a#ple+ the rep!tation of the head of the central "an #ight "e

deri,ed entirely fro# her or his ideology+ professional "acgro!nd+ p!"lic state#ents+

etc& 6n fact it has "een arg!ed 8add citation to Fenneth Rogoff+ 14@:&>ence the

rep!tation of a partic!lar central "an is not necessary tied to past perfor#ance+ "!t

rather to partic!lar instit!tional arrange#ents that the #arets can !se to for#

inflation e;pectations&

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Inflation targeting

Under this policy approach the target is to eep inflation+ !nder a partic!lar definition

s!ch as Cons!#er *rice 6nde;+ 7ithin a desired range&

The inflation target is achie,ed thro!gh periodic ad!st#ents to the Central Ban

interest rate target& The interest rate !sed is generally the inter-"an rate at 7hich

"ans lend to each other o,ernight for cash flo7 p!rposes& %epending on the co!ntry

this partic!lar interest rate #ight "e called the cash rate or so#ething si#ilar&

The interest rate target is #aintained for a specific d!ration !sing open #aret

operations& Typically the d!ration that the interest rate target is ept constant 7ill ,ary

"et7een #onths and years& This interest rate target is !s!ally re,ie7ed on a #onthly

or (!arterly "asis "y a policy co##ittee&

Changes to the interest rate target are #ade in response to ,ario!s #aret indicators in

an atte#pt to forecast econo#ic trends and in so doing eep the #aret on trac

to7ards achie,ing the defined inflation target&

This #onetary policy approach 7as pioneered in e7 Iealand& 6t is c!rrently !sed inthe E!ro one+ )!stralia+ Canada+ e7 Iealand+ or7ay+ *oland+ S7eden+ So!th

)frica+ T!rey+ and the United Fingdo#&

#rice le-el targeting

*rice le,el targeting is si#ilar to inflation targeting e;cept that C*6 gro7th in one

year is offset in s!"se(!ent years s!ch that o,er ti#e the price le,el on aggregate does

not #o,e&

So#ething ain to price le,el targeting 7as tried in the 1430s "y S7eden+ and see#s

to ha,e contri"!ted to the relati,ely good perfor#ance of the S7edish econo#y

d!ring the Great %epression& )s of 2005+ no co!ntry operates #onetary policy "ased

on a price le,el target&

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Monetary aggregates

6n the 14@0s se,eral co!ntries !sed an approach "ased on a constant gro7th in the

#oney s!pply& This approach 7as refined to incl!de different classes of #oney and

credit 8M0+ M1 etc9& 6n the US) this approach to #onetary policy 7as discontin!ed

7ith the selection of )lan Greenspan as 'ed Chair#an&

This approach is also so#eti#es called #onetaris#&

Ahilst #ost #onetary policy foc!ses on a price signal of one for# or another this

approach is foc!sed on #onetary (!antities&

8i9ed e9change rate

This policy is "ased on #aintaining a fi;ed e;change rate 7ith a foreign c!rrency&

There are ,arying degrees of fi;ed e;change rates+ 7hich can "e raned in relation to

ho7 rigid the fi;ed e;change rate is 7ith the anchor nation&

Under a syste# of fiat fi;ed rates+ the local go,ern#ent or #onetary a!thority

declares a fi;ed e;change rate "!t does not acti,ely "!y or sell c!rrency to #aintainthe rate& 6nstead+ the rate is enforced "y non-con,erti"ility #eas!res 8e&g& capital

controls+ i#porte;port licenses+ etc&9& 6n this case there is a "lac #aret e;change

rate 7here the c!rrency trades at its #aret!nofficial rate&

Under a syste# of fi;ed-con,erti"ility+ c!rrency is "o!ght and sold "y the central

"an or #onetary a!thority on a daily "asis to achie,e the target e;change rate& This

target rate #ay "e a fi;ed le,el or a fi;ed "and 7ithin 7hich the e;change rate #ay

fl!ct!ate !ntil the #onetary a!thority inter,enes to "!y or sell as necessary to

#aintain the e;change rate 7ithin the "and& 86n this case+ the fi;ed e;change rate 7ith

a fi;ed le,el can "e seen as a special case of the fi;ed e;change rate 7ith "ands 7here

the "ands are set to ero&9

Under a syste# of fi;ed e;change rates #aintained "y a c!rrency "oard e,ery !nit of

local c!rrency #!st "e "aced "y a !nit of foreign c!rrency 8correcting for the

e;change rate9& This ens!res that the local #onetary "ase does not inflate 7itho!t

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"eing "aced "y hard c!rrency and eli#inates any 7orries a"o!t a r!n on the local

c!rrency "y those 7ishing to con,ert the local c!rrency to the hard 8anchor9 c!rrency&

These policies often a"dicate #onetary policy to the foreign #onetary a!thority or

go,ern#ent as #onetary policy in the pegging nation #!st align 7ith #onetary policy

in the anchor nation to #aintain the e;change rate& The degree to 7hich local

#onetary policy "eco#es dependent on the anchor nation depends on factors s!ch as

capital #o"ility+ openness+ credit channels and other econo#ic factors&

Managed 8loat

Officially+ the 6ndian R!pee 86R9 e;change rate is s!pposed to "e D#aret

deter#inedD& 6n reality+ the Reser,e Ban of 6ndia 8RB69 trades acti,ely on the

6RUS% 7ith the p!rpose of controlling the ,olatility of the R!pee - US %ollar

e;change rate - 7ithin a narro7 "and7idth& 8i&e& pegs it to the US %ollar9

Gold standard

The gold standard is a syste# in 7hich the price of the national c!rrency as #eas!red

in !nits of gold "ars and is ept constant "y the daily "!ying and selling of "ase

c!rrency to other co!ntries and nationals& 8i&e& open #aret operations+ cf& a"o,e9& The

selling of gold is ,ery i#portant for econo#ic gro7th and sta"ility&Today this type of

#onetary policy is not !sed any7here in the 7orld+ altho!gh a for# of gold standard

7as !sed 7idely across the 7orld prior to 14?1& 'or details see the Bretton Aoods

syste#& 6ts #aor ad,antages 7ere si#plicity and transparency&

Mi9ed policy

6n practice a #i;ed policy approach is #ost lie inflation targeting& >o7e,er so#e

consideration is also gi,en to other goals s!ch as econo#ic gro7th+ !ne#ploy#ent

and asset "!""les& This type of policy 7as !sed "y the 'ederal Reser,e in 144@&

:' O!7ecti-es of monetary policy

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Since #onetary policy is one instr!#ent of econo#ic policy+ its o"ecti,e can not "e

different fro# those of o,erall econo#ic policy& The three i#portant o"ecti,es of

#onetary policy are$

i' Ens!ring price sta"ility that is containing inflation&ii' To enco!rage econo#ic gro7th&

iii' To ens!re sta"ility of e;change rate of #oney+ that is e;change rate of #oney

7ith other foreign c!rrencies&

;' &ools sed in determining the monetary policy

Monetary !ase

Monetary policy can "e i#ple#ented "y changing the sie of the #onetary "ase& This

directly changes the total a#o!nt of #oney circ!lating in the econo#y& ) central "an

can !se open #aret operations to change the #onetary "ase&

The central "an 7o!ld "!ysell "onds in e;change for hard c!rrency& Ahen the

central "an dis"!rsescollects this hard c!rrency pay#ent+ it alters the a#o!nt of

c!rrency in the econo#y+ th!s altering the #onetary "ase&

Reser-e re1irements

The #onetary a!thority e;erts reg!latory control o,er "ans& Monetary policy can "e

i#ple#ented "y changing the proportion of total assets that "ans #!st hold in

reser,e 7ith the central "an&

Bans only #aintain a s#all portion of their assets as cash a,aila"le for i##ediate

7ithdra7al the rest is in,ested in illi(!id assets lie #ortgages and loans&By

changing the proportion of total assets to "e held as li(!id cash+ the 'ederal Reser,e

changes the a,aila"ility of loan a"le f!nds& This acts as a change in the #oney s!pply&

+iscont .indo. lending

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Many central "ans or finance #inistries ha,e the a!thority to lend f!nds to financial

instit!tions 7ithin their co!ntry& By calling in e;isting loans or e;tending ne7 loans+

the #onetary a!thority can directly change the sie of the #oney s!pply&

Interest rates

The contraction of the #onetary s!pply can "e achie,ed indirectly "y increasing the

no#inal interest rates& Monetary a!thorities in different nations ha,e differing le,els

of control of econo#y-7ide interest rates& 6n the United States+ the 'ederal Reser,e

can set the disco!nt rate+ as 7ell as achie,e the desired 'ederal f!nds rate "y open

#aret operations& This rate has significant effect on other #aret interest rates+ "!t

there is no perfect relationship&6n other nations+ the #onetary a!thority #ay "e a"le to

#andate specific interest rates on loans+ sa,ings acco!nts or other financial assets& By

raising the interest rate8s9 !nder its control+ a #onetary a!thority can contract the

#oney s!pply+ "eca!se higher interest rates enco!rage sa,ings and disco!rage

"orro7ing& Both of these effects red!ce the sie of the #oney s!pply&


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#art (*

Economic state of B+

)' Introdction of Monetary policy of Bangladesh

Monetary #olicy the policy adopted "y the central "an for control of the s!pply of

#oney as an instr!#ent for achie,ing the o"ecti,es of general econo#ic policy& )s

stated in the Bangladesh Ban Order 14?2+ the principal o"ecti,es of the co!ntryDs

#onetary policy are to reg!late c!rrency and reser,es to #anage the #onetary and

credit syste# to preser,e the par ,al!e of do#estic c!rrency to pro#ote and

#aintain a high le,el of prod!ction+ e#ploy#ent and real inco#e and to foster

gro7th and de,elop#ent of the co!ntryDs prod!cti,e reso!rces in the "est national

interest& )ltho!gh the long ter# foc!s of #onetary policy in Bangladesh is on gro7th

7ith sta"ility+ the short-ter# o"ecti,es are deter#ined after a caref!l and realistic

appraisal of the c!rrent econo#ic sit!ation of the co!ntry&

)t =J o,er the past 5 years+ strong G%* gro7th has "een !nderpinned "y #ore

#aret-oriented econo#ic policies+ a dyna#ic gar#ent sector+ and s!"stantial inflo7s

of o,erseas 7orersK re#ittances& The lead-!p to the parlia#entary elections 7as

generally e;pected to "e a ro!gh patch gi,en the co!ntryKs contentio!s political

en,iron#ent the constit!tional #echanis# of a ne!tral caretaer go,ern#ent 7as

e;pected to help s#ooth the 7ay& %eepening political deadloc c!l#inated 7ith the

president in Lan!ary declaring a state of e#ergency and calling o the elections& B!t

the ne7 caretaer Go,ern#ent has contin!ed 7ith esta"lished econo#ic policies and

e;pedited str!ct!ral and sector refor#s& 6t has taen a "road agenda of acti,ity+

incl!ding an e;tensi,e anticorr!ption dri,e that it sees necessary to esta"lish "etter

fo!ndations for holding the elections& G%* is forecast to #aintain its recent

#o#ent!# o,er the #edi!# ter#&

Aith the shifts of the policy stance of the go,ern#ent in ,ario!s phases+ necessary

ad!st#ents 7ere #ade in the co!ntryDs #onetary policy& 6n the first years after

li"eration+ the pri#ary target of #onetary policy 7as to reg!late not the (!antity of

#oney+ "!t the direction of the flo7 of #oney and credit in s!pport of the go,ern#ent

financial progra##e& 6n 14?:+ Bangladesh entered into a stand"y-arrange#ent 7ith

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6M' and the co!ntryDs #onetary policy got a changed shape+ 7hich fi;ed an e;plicit

target of safe li#it of #onetary e;pansion on ann!al "asis& Aith this change+

B)G)%ES>B)Fstarted setting short-ter# o"ecti,es of #onetary policy in close

colla"oration of the go,ern#ent and tried to achie,e the target "y !sing the direct

instr!#ent of control& The principal target of #onetary control 7as "road #oney 8M29

ie+ the s!# of the c!rrency in circ!lation and total deposits of #oney in "ans& The

targeted gro7th of M2 depended on a realistic forecast of the gro7th rate of real G%*+

an accepta"le rate of inflation and an attaina"le le,el of international reser,es&

Bangladesh Ban too #eas!res to #onitor credit and #onetary e;pansion eeping in

,ie7 the price sit!ation and international reser,es position& Efforts 7ere #ade to

achie,e the targeted gro7th of do#estic credit and there"y+ the #oney s!pply+ thro!gh

i#posing ceilings on credit to the go,ern#ent+ p!"lic+ and pri,ate sectors& The #aor

policy instr!#ents a,aila"le to Bangladesh Ban 7ere to set credit ceiling on the

"ans and pro,ide li"eral refinance facility at concessional rate for priority lending&

)ccording to the national econo#ic policy+ the "ans 7ere to pro,ide the desired

,ol!#e of credit at an ad#inistered and lo7 rate of interest& 6n that sit!ation+

Bangladesh Ban practically did not ha,e any effecti,e instr!#ent for #aing

ad!st#ents in the gro7th of #oney s!pply or for trans#itting #aret signals into

changes in #oney s!pply& The #onetary policy therefore+ co!ld not f!nction in its tr!e

sense& )s a res!lt the B)F6GS


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refinance facilities at rates lo7er than the "an rate s!"stantially eroded its

significance& >o7e,er+ since 1440+ the instr!#ent has "een p!t in !se to change the

cost of "orro7ings for "ans and there"y to affect the #aret rate of interest& Ban

rate 7as grad!ally lo7ered fro# 4&?:J in Lan!ary 1440 to :J in March 1445& 6t 7as

raised to :&?:J fro# 10 Septe#"er 144: and f!rther+ to ?&:J and @J fro# 14 May

144? and 20 o,e#"er 144? respecti,ely& The rate 7as lo7ered to ?J fro# 24

)!g!st 1444&

Open market operations8OMO9 These in,ol,e the sale or p!rchase of sec!rities "y

the central "an to 7ithdra7 li(!id f!nds fro# the "aning syste# or inect the sa#e

into that syste#& OMO allo7s fle;i"ility in ter#s of "oth the a#o!nt and ti#ing of

inter,ention+ 7hich did not e;ist in Bangladesh "efore 1440& Bangladesh Ban

introd!ced a 41-day Bangladesh Ban Bill+ a #aret-"ased tool for #onetary

inter,ention+ in %ece#"er 1440& The "an "ill 7as s!"se(!ently 7ithdra7n fro# the

#aret& )t present+ OMO operations are cond!cted thro!gh participation of "ans in

#onthly or fortnightly7eely a!ctions of TRE)SUR


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*' Bangladesh4 &he Economic performance

Gro7th in G%* has trended !p in recent years+ reaching =&?J in '


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all heightened inflationary press!res& Rising e;ports of so#e cons!#er ite#s+ p!lling

their do#estic prices to higher glo"al le,els+ also added to price press!res&

%espite atte#pts to tighten #onetary policy+ "oth #oney and credit aggregates

e;panded rapidly in 'o7e,er+ to deri,e greater "enefit

fro# the M*S+ the Go,ern#ent needs to allo7 Bangladesh Ban greater operational

a!tono#y and to esta"lish greater coordination "et7een #onetary and fiscal policies&

)t 3&3J of G%*+ the central go,ern#ent deficit in '


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Bangladesh is yet to esta"lish a healthy and efficient financial syste#& Ongoing

"aning sector restr!ct!ring #!st "e strengthened& 6n the capital #aret+ the thr!st

sho!ld "e on i#pro,ing financial reporting and corporate go,ernance+ and

strengthening #onitoring and enforce#ent "y the Sec!rities and E;change

Co##ission& Many go,ern#ent-o7ned enterprises+ incl!ding the petrole!#

distri"!tion co#panies and Bi#an Bangladesh )irlines+ as 7ell as #aor pri,ate

co#panies s!ch as #o"ile phone co#panies 7ith h!ge ann!al t!rno,er+ co!ld "e

pri#e candidates for selling shares sti#!lating the e(!ity #aret& 'ro# already lo7

le,els+ '%6 inflo7s f!rther declined in '


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#art (,

Bangladesh Ban5

Monetary policy statement

)' Introdction4

'ollo7ing a strong gro7th of :&5 percent in 200=+ glo"al o!tp!t gro7th is proected to

"e 5&4 percent in 200? 8AEO+ )pril D0?+ 6M'9 7hile de,eloping 7orld 7o!ld gro7

"y ?&0 percent& Econo#ic gro7th in Bangladesh has also got its #o#ent!# lie its

neigh"oring co!ntries& Bangladesh e;perienced a real G%* gro7th of =&=3 percent in

'< 0=& The gro7th proection for c!rrent fiscal year is =&: percent& The policy

strategy recently initiated and the refor# progra#s !ndertaen "y the go,ern#ent

7o!ld not only help the econo#y to gro7 "y ?&0 percent in '


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proected to "e ?&0 percent in line 7ith the proection in the Medi!# Ter#

Macroecono#ic 'ra#e7or 8MTM'9&

Inflation$ '


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i#porters+ easing the C #argin for food ite#s+ e;tending ti#e li#it for c!sto#er

facility and arranging higher agric!lt!ral credit& Since glo"al co##odity prices are

not proected to fall in 200@ 8AEO+ 6M'+ )pril 200?9 these #eas!res #ay only

slightly lessen the press!re on cons!#er prices& >ence #onetary stance of the

Bangladesh Ban o,er the co#ing (!arters 7ill contin!e to target the contain#ent of

ann!al a,erage inflation 7ithin a range of =&:P?&0 percent for '


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f!nded "y T& 52&:: "illion in foreign grants+ T& =3&0: "illion in foreign loans and

T&11?&:3 "illion in do#estic "orro7ing incl!ding "an "orro7ing of T& ?2&:3

"illion& B*CKs acc!#!lated loss of T& ?:&23 "illion is incl!ded in the "!dget& )s

indicated in the "!dget this 7ill not create i##ediate additional fiscal lia"ilities as it

7ill "e financed "y a .on-Cash Bond/ iss!e&

'ro# the "eginning of '


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)n !p7ard "ias in policy interest rates and reintrod!ction of BB "ills in Octo"er 200=

helped in li#iting inflation aro!nd the targeted se,en percent despite international

price press!re& 6n spite of ca!tio!s #onetary policy+ M2 year-on-year gro7th 81@&2

percent9 at the end of May D0? e;ceeded the end-L!ne target 815&? percent9+ gro7th

rate of pri,ate sector credit that #irrors a part of the aggregate de#and gre7 at 1:&=

percent 7hich 7as lo7er than pre,io!s yearKs gro7th rate of 1?&1 percent& et foreign

assets of "aning sector has "een contin!ing to gro7 at a rate leading to the "!ild !p

of foreign e;change reser,es that reached N :&1 "illion "y the end of L!ne D0?&

BB has "een contin!ing to follo7 the ca!tio!s #onetary stance 7ith a ,ie7 to

ens!ring that the e;isting inflation is not f!rther f!elled "y increased aggregate

de#and& >o7e,er+ BB is co##itted to ens!ring flo7 of credit in the prod!cti,e

sectors lie agric!lt!re+ s#all scale ind!stries+ lo7 cost ho!sing etc&+ 7here #aret

has failed to deli,er& BB has already taen a decision to introd!ce a refinancing

sche#e for ho!sing loans for lo7er and #iddle inco#e gro!ps& This step 7ill pro,ide

i#pet!s to the ho!sing sector 7hich pro,ides e#ploy#ent to a large n!#"er of

people& 6n order to "oost credit in the agric!lt!ral sector+ BB re(!ested the

co##ercial "ans 87hich hitherto did not pro,ide #!ch agric!lt!ral credit9 to co#e

for7ard+ and in response to that these "ans ha,e ass!red to pro,ide #ore than T&

1+000 crore as agric!lt!ral credit d!ring ne;t 12 #onths&

32


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)fter strengthening the reg!latory fra#e7or+ i#pro,ing the "an s!per,ision

process+ and co#pleting proced!re for selling R!pali Ban+ BB is no7 foc!sed on

corporatiing and restr!ct!ring the nationalied co##ercial "ans 8CBs9& The

process of corporatiation of three CBs P Sonali+ Lanata and )grani P has started&

Meanti#e+ these "ans ha,e "een t!rned into p!"lic li#ited co#panies& CB refor#s

7ill increase efficiency of financial syste# 7hich in t!rn 7ill enhance its resilience

contri"!ting to fir# !p the #onetary sta"ility&

Monetary Stance for 8=(


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Bi!liography4

1& 777&google&co#

2& 777&"angladesh"an&org3& 777&"anglapedia&co#

5& 777&thene7nation&co#

:& 777&financiale;press-"d &co#

=& 777&thedailystar&net

?& 777&ne7age"d&co#

@& 777&"dne7s25&co#

4& 777&7eeipedia&org

10& 777&t!tor2!&net

11& 777&yahoo&co#
http://www.banglapedia.com/http://www.thenewnation.com/http://www.thedailystar.net/http://www.newagebd.com/http://www.bdnews24.com/http://www.weekipedia.com/http://www.tuitor2u.net/http://www.yahoo.com/http://www.banglapedia.com/http://www.thenewnation.com/http://www.thedailystar.net/http://www.newagebd.com/http://www.bdnews24.com/http://www.weekipedia.com/http://www.tuitor2u.net/http://www.yahoo.com/

60816069 MACRO Economics Assignment

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