Monetary Policy of Bangladesh”

Topics: Monetary policy, Central bank, Fractional-reserve banking Pages: 11 (3357 words) Published: March 30, 2014
An essay
“Monetary Policy of Bangladesh”

Course Code: MBA 510
Course Title: Macro Economics

Submitted to:
Professor Abdul Bayes
Department of Business Administration
East West University

Submitted by:
Minhajul Abedin
ID: 2013-1-95-019
Section: 01
Date of submission: 24 august, 2013

Monetary Policy of Bangladesh

Decisions regarding the monetary policy are very important for any country in today’s world. To control the supply of money by targeting a rate of interest, and to promote the economic growth and stability, a good control over the monetary policy is a must for every country. Bangladesh is a developing country and its monetary policies are generated by the central bank of the country. Though the land size of Bangladesh is not that big but in terms of total people, it is a big country relative to other countries. As a developing country it is undertaking so many developments and business projects both publicly and privately. The monetary policy of Bangladesh is playing a pivotal role to control the money supply of the country which in turn is promoting the overall economic growth of the country.

This essay briefly discusses about some of the activities of the central bank related with the monetary policy of Bangladesh along with some other primary things which are related to the basic monetary policy. In this essay the “Monetary Policy of Bangladesh” will be presented by following this sequence,

1 A brief overview of monetary policy
2 Objectives of the monetary policy
3 Types of monetary policy
4 Tools to implement the monetary policy
5 Organization responsible in Bangladesh for the formulation and implementation of the monetary policy 6 The monetary policy framework of Bangladesh
7 The money supply process in Bangladesh
8 Factors determining the money supply in Bangladesh
9 Conclusion.

A brief overview of monetary policy:

Monetary policy is the process by which the monetary authority of a country controls the supply of money, often targeting a rate of interest for the purpose of promoting economic growth and stability. The official goals usually include relatively stable prices and low unemployment. Monetary policy of a country can be either expansionary or contractionary. An expansionary policy is implemented to combat the unemployment by increasing the interest rate, which in turn encourages people, and businesses to take loans from the banks to start new businesses or expand existing businesses. A contractionary monetary policy is implemented by expanding the money supply more slowly than usual to reduce the inflation rate, and to avoid the resulting deteriorated asset values from the increased price levels in the economy.

Objectives of the monetary policy:

Most of the times it is very difficult for a country to select the right objective for its monetary policy. The objectives are selected after carefully reviewing the specific economic conditions and requirements. The main objectives of the monetary policy are,

1 To promote economic growth
2 Achieve stable exchange rate
3 To attain price stability
4 To keep the economy fully employed
5 To control the credits
6 To reduce the inequalities between the income and wealth.
7 To create and to expand financial institutions.

Types of monetary policy:
The base money is the portion of the commercial banks' reserves that are maintained in accounts with their central bank plus the total currency circulating in the public (which includes the currency, also known as vault cash, that is physically held in the banks' vault).The modification of this base money in circulation is the main tool for the implementation of any types of monetary policy. To change either the amount of money or its liquidity the monetary authority modifies the circulation of the base money by buying or selling the financial assets in open market. To achieve their goals the monetary authority uses several instruments...
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