Monetary policy of Bangladesh

Topics: Monetary policy, Inflation, Central bank Pages: 10 (2561 words) Published: November 16, 2014


Monetary Policy of Bangladesh


Monetary Policy is the policy adopted by the central bank for control of the supply of money as an instrument for achieving the objectives of general economic policy. With the shifts of the policy stance of the government in various phases, necessary adjustments were made in the country's monetary policy. The Department of Research in the Bangladesh Bank plays an important role in the formulation of economic policies of the country. The principal function of the Department is to help the bank in the formulation of monetary and credit policies and also to assist it in discharging its duty as adviser to the Government on economic and financial matters. To this end, the department keeps the top executives of the bank fully informed of latest economic development both at home and abroad, in a regular and systematic manner. For this purpose the Department keeps a close watch on trends in the domestic economy as well as on international economic developments with particular reference to monetary, fiscal and trade problems and policies. Domestic and international economic developments are brought within the compass of comprehensive reports and reviews which are submitted for perusal of the Governor, Deputy Governor, and Senior Executives of the bank, as also the bank’s Board of Directors.

Definition of Monetary Policy:
Monetary policy is the term used by economists to describe ways of managing the supply of money in an economy. Monetary Policy is the management of money supply and interest rates by central bank to influence prices and employment for achieving the objectives of general economic policy. Monetary policy works through expansion or contraction of investment and consumption expenditure. According to Paul Einzig “Monetary policy includes all monetary decisions and measures irrespective of whether their aims are monetary and non-monetary, and all non-monetary decision sand measures that aim it affecting the monetary system.” According to Harry G. Johnson, “Monetary policy employing the central bank’s control of supply of money as an instrument for achieving the objectives of general economic policy.” According to G.K. Shaw “By monetary policy, we mean any conscious action undertaken by the monetary authorities, to exchange the quantity, or cost (interest rate) of money.” From the above discussion monetary policy may be defined as the central bank’s policy pertaining to the control of the availability, cost and use of money and credit with the help of monetary measures in order to achieve specific goals.

The regulation of the money supply and interest rates by a central bank, such as the Central Bank of Bangladesh in order to control inflation and stabilize currency. Monetary policy is one of the two ways the government can impact on the economy. By impacting the effective cost of money, the Bangladesh Bank as a controller of monetary policy can affect the amount of money that is spent by consumers and businesses. 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 theory provides insight into how to craft optimal monetary policy. Monetary policy is the process by which the government, central bank, or monetary authority of a country controls a) The supply of money,

b) Availability of money, and
c) Cost of money or rate of interest to attain a set of objectives oriented towards the growth. d) Monetary theory provides insight into how to craft optimal monetary policy. Scope of monetary policy:

Monetary decisions today take into...
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