This presentation consist of the theoretical concepts of interest rate, economic growth, inflation, monetary policy, foreign flow of funds, budget deficit. And further data analysis is given based on 5 years monetary policy statement.

1. ECONOMIC
FORCES
THAT AFFECT
INTEREST RATES
IN BANGLADESH.
x
y
0

2. 1 2 3 4
5INTRODUCTI
ON
PRIME
ECONOMIC
FACTORS
THAT
AFFECT
INTEREST
RATES OF
BANGLADES
H
OTHER
ECONOMIC
FACTORS
THAT
AFFECT
INTEREST
RATES OF
BANGLADES
H
ANALYSIS
SUMMARY

3. INTRODUC
TION

4. WHAT IS INTEREST RATE?
The interest rate is the rate at which a person borrowed money from lender. The amount that
is borrowed is called the “principal amount” and the borrower has to pay a cost for borrowing
that is the” interest rate”. The interest rate is one of the main factors of a country’s economy.
It is mainly determined through the interaction between demand and supply of loanable funds.
PRIME ECONOMIC FACTORS THAT AFFECT
INTEREST RATE
Economic Growth
Inflation
Monetary Policy
Foreign Flow Of Funds
Budget Deficit
OTHER ECONOMIC FACTORS THAT AFFECT
INTEREST RATE
Type of Loans
Exchange Rate
Commodity Price
Unemployment
Government

5. PRIME ECONOMIC FACTORS
THAT AFFECT INTEREST RATES
OF BANGLADESH

6. ECONOMIC GROWTH
Economic growth is an increase in the capacity of an economy to produce
goods and services, compared from one period of time to another.
Growth Domestic Product (GDP) is the best way to measure economic
growth. It takes into account all goods and services that are produces for
sale in a country within a certain period of time.
When there is an economic
growth, that is, the GDP is
positive, the interest rate
increases.
When there is an economic
downfall, that is, the GDP is
negative, the interest rate
decreases.
RELATIONSHIP BETWEEN ECONOMIC GROWTH
AND INTEREST RATE

7. INFLATION
Inflation is a sustained increase in the general level of
prices for goods and services in an economy over a
period of time and fall in the purchasing value of money.
IMPACT OF INFLATION ON
INTEREST RATE
i1
i2
D1
D2
S1
S2
Quantity of loanable funds
Interest rate
Fig – Increase in the interest
rate in case of increasing the
demand for loanable fund and
decreasing the supply of
loanable fund

8. 0.00%
2.00%
4.00%
6.00%
8.00%
10.00%
12.00%
14.00%
2011 2012 2013 2014 2015 2016 2017
INFLATION RATE OF BANGLADESH
Inflation rate of bangladesh

9. MONETARY POLICY
Monetary policy is conducted by the central bank. It involves influencing the
supply and demand for money through interest rates and other monetary tools.
For achieving the objective of general economic policy, the central bank uses an
instrument for controlling the supply of money in the economy is termed as
monetary policy
THE MONETARY POLICY OF A COUNTRY HELPS THE GOVERNMENT TO CONTROL-
 The supply of money
 The availability of money
 Rate of interest rate to attain a set of objectives towards the growth and stability of the
economy.
 How to trade optimal monetary policy insight is given by the Monetary Policy theory.

10. D1
S2
S1
I1
I2
Fig – Decrease in the interest
rate in case of increasing the
supply of loanable fund.
D1
S1
S2
I2
I1
Fig – Increase in the interest
rate in case of increasing the
supply of loanable fund.
TWO TYPES OF
MONETARY POLICY
EXPANSIONARY
MONETARY POLICY
CONTRACTIONARY
MONETARY POLICY

11. FACTORS THAT EFFECT INTEREST RATE DUE TO FOREIGN FLOW OF FUNDS-
 Inflation
 Exchange rate
 Tax rate
FOREIGN FLOW OF FUND
Foreign flow of fund refers to the steady or continuous movement of a sum
of money through all the transactions that occur between domestic and
foreign residents over a specific period of time.

12. THE TWO VITAL ELEMENTS OF DETERMINING INTEREST
FOR A SPECIFIC CURRENCY ARE:
1. Demand for funds denominated in that currency
2. Supply of funds available in that currency

13. BUDGET DEFICIT
Budget deficit occurs when the government fiscal policy results in
more expenditure then tax
revenue. Budget deficit is used to refer government spending.
D1
D2
S1
I2
I1
Quantity of Loanable Funds
Interest Rate
IMPACT OF BUDGET DEFICIT ON INTEREST RATE

14. BANGLADESH BUDGET DEFICIT
EVALUATION
YEAR DEFICIT
2015 -7485 BDT Billion
2014 -5318 BDT Billion
2013 -5143 BDT Billion
2012 -3494 BDT Billion
2011 -4374 BDT Billion

15. OTHER FACTORS THAT AFFECT
INTEREST RATES OF
BANGLADESH

16. 51
2 4
3
OTHER
FACTORS
THAT AFFECT
INTEREST
RATETYPES OF LOANS
EXCHANGE RATE
COMMODITY
PRICE
UNEMPLOYMENT
GOVERNMENT

17. ANALYSIS

18. MONETARY POLICY 2011
(January – June)
Expansionary Policy

19.  Increse growth in
agricultural sector
 Increase domestic credit
growth
GOAL
EXPORT &
IMPORT
January 2011
Export was 124.5 BDT billion
Import was 216.47 BDT billion
June 2011
Export raised to 162.86 BDT billion
Import raised to 215.03 BDT
billion
INFLATION
The inflation rate in
January 2011 was 10.5%
&
In June 2011 increased
to 13.41%.
INTEREST
The interest rate
was at 5.5%.

20. MONETARY POLICY 2011
(July - December)
Contractionary Policy

21. 218.81 BDT billion
230.23 BDT billionStep 2
155.16BDT billion
10.81%
15.17%
GOAL
EXPORT
GDP
INFLATION
IMPORT
BUDGET DEFICIT
INTEREST
• Increase the
GDP and
industrial sector
growth.
• Control the
inflation rate
131.81 BDT
billion
JULY JULY
DECEMBER DECEMBER
JULY
DECEMBER
-4374 BDT billion
that is (-3.59% of
GDP)
6.46%
Rises to 6.75%.

22. MONETARY POLICY 2012
(January – June)
Contractionary Policy

23. GOAL
EXPORT &
IMPORT
January 2012
Export raised to 150.75 BDT
billion
import raised to 279.13 BDT
billion
June 2012
Export raised to 152.63 BDT
billion
Import decreased to 204.22
BDT billion INFLATION
The inflation rate in
January 2012 was 11.8% &
In June 2012 decreased to
5.55%.
INTEREST
The interest rate
increased to 7.75%.
 Maintain the inflation at
a moderate level.
 provide households and
firms sufficient
information to plan their
savings and investment
decisions.

24. MONETARY POLICY 2012
(July– December)
Contractionary Policy

25. 210.26 BDT
253.82 BDTStep 2
157.84 BDT
7.14%
5.21%
GOAL
EXPORT
GDP
INFLATION
IMPORT
BUDGET DEFICIT
INTEREST
Maintain the
inflation rate at a
moderate level
To grow the
supportive sectors
of the government
152.12 BDT
JULY JULY
DECEMBER DECEMBER
JULY
DECEMBER
-3494 BDT billion ,
that is (-2.98% of
GDP)
Raised to 6.52%
remains constant
to 7.75%

26. MONETARY POLICY 2013
(January – June)
Expansionary Policy

27.  Goal to increase the
growth rate in agricultural
sector and industrial
sector
 Goal to increase Net
Foreign Assets expected
to push inflation up
GOAL
EXPORT &
IMPORT
January 2013
Both Export & Import increased
to 155.04 BDT & 206.96 BDT
billion respectively.
June 2013
Export raised to 174.96 BDT
billion
Import raised to 219.19 BDT
billion
INFLATION
The inflation rate in
January 2013 was
6.62% &
In June 2013 increased
to 8.05%
INTEREST
The interest rate was
fallen from 7.75% in
January to 7.25% in
June 2013

28. MONETARY POLICY 2013
(July – December)
Contractionary Policy

29. 227.6 BDT
259.55 BDTStep 2
178.16 BDT
7.35%
7.85%
GOAL
EXPORT
GDP
INFLATION
IMPORT
BUDGET DEFICIT
INTEREST
163.02 BDT
JULY JULY
DECEMBER DECEMBER
JULY
DECEMBER
-5143 BDT billion,
that is (-3.38% of
GDP)
Decreased to
6.01%
Same as the
previous year at
7.25%.
to take care of the
broad money
growth rate,
reserve money
growth rate,
domestic growth
rate, private sector
growth rate etc. to
go a desired
position.

30. MONETARY POLICY 2014
(January – June)
Contractionary Policy

31.  To bring average inflation
down to 7%,
 Ensuring sufficient credit
growth to stimulate
inclusive economic
growth.
GOAL
EXPORT &
IMPORT
January 2014
Export increased to180.06 BDT
billion
Import increased to 283.37 BDT
billion.
June 2014
Export raised to 195.64 BDT
billion
Import decreased to 252.08 BDT
billion.
INFLATION
The inflation rate in
January 2014 was
raised to 7.5% and it
was decreased in July
to 6.97%.
INTEREST
The interest rate was
constant as 7.25%.

32. MONETARY POLICY 2014
(July - December)
Contractionary Policy

33. 244.24 BDT
281.92 BDTStep 2
175.9 BDT
6.11 %
7.04 %
EXPORT
GDP
INFLATION
IMPORT
BUDGET DEFICIT
INTEREST
To maintain
sustainability in
economic growth,
reserve money
growth and growth
in net domestic
asset.
185.6 BDT
JULY JULY
DECEMBER DECEMBE
R
JULY
DECEMBER
-5318 BDT billion,
that is (-3.08% of
BDT)
Raised to 6.o6%
Same as the
previous year at
7.25%.
GOAL

34. MONETARY POLICY 2015
(January – June)
Expansionary Policy

35.  Goal to raise GDP Growth
estimate of 6.5-6.8%
 Goal to keep inflation to
6.5%
GOAL
EXPORT &
IMPORT
January 2015
Export raised to 190.44 BDT
billion
Import decreased to 257.43 BDT
billion
June 2015
Export raised to 197.61 BDT
billion
Import raised to 262.5 BDT
billion INFLATION
The inflation rate in
January 2015 was 6.04%
&
In June 2015 increased
to 6.25%.
INTEREST
The interest rate was
constant as 7.25%.

36. MONETARY POLICY 2015
(July – December)
Contractionary Policy

37. 225.87 BDT
287.67 BDTStep 2
179 BDT
6.1%
6.36%
GOAL
EXPORT
GDP
INFLATION
IMPORT
BUDGET DEFICIT
INTEREST
Goal to have GDP
growth target of 7%
Goal to keep inflation
to 6.2%
200.08 BDT
JULY JULY
DECEMBER DECEMBER
JULY
DECEMBER
-7485 BDT billion,
that is (-3.88% of
GDP)
Raised to 6.55%
Same as the
previous year at
7.25%.

38. SUMMARY

39. Bangladesh mostly faced
budget deficit, exception is
from 1991 to 1994. These
budget deficit shifts the
demand curve to right and
influenced to increase the
interest rate.
There was rapid growth of
inflation from 2011 and 2012
and that influence the interest
rate to rise to 7.75% and from
2013 the inflation was falling
and the interest rate also goes
to 7.25%.
The GDP growth rate from 2011
was rising and that also helps to
rise the interest rate but The GDP
growth rate falls in 2013 to 6.01%
and the interest rate also falls to
7.25% from 7.75%.
Impact of these prime factors
are not regular & distinct in
developing country like
Bangladesh
When the net capital
outflow decreases that
decrease the foreign
exchange rate value, which
also impact to decrease the
real interest rate.
Small economy with high
inflation also impact on
interest rate to rise further.
51
2 4
3
SUMMARY

40. THANK
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