It's a PowerPoint presentation slide prepared on monetary policy in Bangladesh.

3. Serial
No.
Name ID
1 Abdullah Al-Mamun 14132624
2 MD. Shakhawat Hossain 14132618
3 S. M. Asif Istiak 14132623
4 Ashikur Rahman Pavel 14132625
5 MD. Farkuzzaman Faruk 14132626
6 Afsana Siddika Mony 14132627
7 Safia Akter 14132628
8 Masud Rana 14132629
9 MD. Anwar Hossain 14132630
10 Sheuly Akter 14132631
11 Tarikul Islam 14132632
12 Aminul Islam 14132635
13 Jahirul Islam 12132636(Re-Add)

5. What is Monetary Policy?
The term used by economists to describe ways of
managing the supply of money in an economy.
Monetary policy
is a process
Dealing with
The supply
of Money
Maintaining
the Optimum
Cost of
Money
The
availability
of Money
Ensuring the
growth and
stability of
Money Supply

7. Rapid Economic Growth – It can influence economic growth by
controlling real interest rate and its impact on the investment.
Price Stability - It tries to keep the value of money stable, reduces
inequalities.
Exchange Rate Stability – It aims at maintaining the relative stability in
the exchange rate.
Balance of Payments (BOP) Equilibrium – It tries to maintain
equilibrium in the balance of payments.
Full Employment - It helps in creating more jobs if the monetary policy is
expansionary.
Neutrality of Money – It can regulate the supply of money and neutralize
the effect of money expansion.
Equal Income Distribution – It can make special provisions for the
neglect supply thus can help in reducing economic inequalities among
different sections of society.

9. Tools of monetary policy generally used
Open market operation – means to buy or sell security to the
member bank by the central bank for controlling money supply.
oBB sell security to reduce available fund of member bank.
oBB purchase security to rise available fund of member bank.
Reserve requirements - is the amount of fund that each member
bank must keep to the central bank.
oBB rise reserve requirement to restrict the liquidity.
oBB reduce reserve requirement to stimulate liquidity.
Discount window lending - is the rate at which commercial bank
borrow fund from the central bank.

11. Background of monetary policy in Bangladesh
Adopted by the central bank for control of the supply of money
Used to regulate currency and reserves
Manage the monetary and credit system, to preserve the par
value of domestic currency, to promote and maintain a high level
of production, employment and real income, and to foster growth
and development of the country’s productive resources
The long term focus of monetary policy in Bangladesh is on
growth with stability
The short term objectives are determined after a careful and
realistic appraisal of the current economic situation of the country
The aim of monetary policy is to keep inflation low and steady.

12. Objectives of Monetary Policy in Bangladesh
To regulate currency and reserves.
To manage the monetary and credit system.
To preserve the par value of domestic currency.
To promote and maintain a high level of
production, employment and real income.
To foster growth and development of the
country's productive resources in the best national
interest.

14. Frameworks of Bangladesh’s Monetary Policy
The Policy Target -
It is necessary that the monetary policy framework be articulated for greater
clarity and transparency benefiting both the policy makers as well as the
stakeholders.
The appropriate monetary policy strategy in the Bangladesh context would be to
achieve the goal of price stability with the highest sustainable output growth.
The following objectives are also kept in mind: -
1. The promotion of price stability
2. GDP Growth
3. Ensuring full or near full employment
4. Supporting national and global economic and financial stability
Inflation target -
 Inflation, a rise in the overall level of prices.
 Governments consequently have tried to squelch inflation by adopting
conservative and sustainable fiscal and monetary policies.
 As a policy goal, core inflation may be a more credible target than CPI
inflation.

15. In recent years, many central banks, the makers of monetary policy, have
adopted a technique called inflation targeting to control the general rise in the
price level. In this framework, a central bank estimates and makes public a
projected, or “target,” inflation rate and then attempts to steer actual inflation
toward that target, using such tools as interest rate changes.
Growth Target -
As long as Bangladesh remains within the National Strategy for Accelerated
Poverty Reduction (NSAPR) – Poverty Reduction Growth Facility (PRGF)
framework, the growth target is already built in there.
The major constraint here is the lack of timely data on macro-economic
indicators.

17. The monetary policy Highlights in Bangladesh:
FY2017 (January - June 2017)
Broad money (M2) grew by 13.8 percent in November 2016,
remaining within the FY17 ceiling of 15.5 percent to support the
GDP growth target of 7.2 percent and the inflation ceiling of 5.8
percent, respectively.
Both food and non-food CPI inflation moderated, aided by
favorable agricultural production, modest rise in global commodity
prices. Average CPI inflation declined to 5.5 percent by December
2016.
Domestic demand-driven economic activity remains relatively
buoyant, as indicated by credit growth, industrial activity, and import
trends.
BB maintains the current policy stance: repo and reverse repo rates
will remain unchanged at 6.75 and 4.75 percent.

18. BB’s supervisory vigilance on lending efficiency and risk
management in the financial sector will continue to be strengthened.
Bangladesh Securities and Exchange Commission (BSEC) has
already taken welcome steps with cautionary messages, financial
literacy promotion, and so forth. BB may also direct banks to prevent
diversion of business and consumer loans into stock markets and
remains ready to take prompt policy actions.
BB is for quite some year’s now promoting inclusive, green
financing (targeting SME, agriculture and green initiatives), fostering
financial sector wide a socially responsible financing ethos.

20. Monetary Policy Stance for H2 FY17
This Monetary Policy Statement (MPS) reports Bangladesh Bank's
monetary policy stance for the second half (H2) of FY17 .
The current MPS has been taken by the central bank when the
country’s economy is facing with major challenges such as increasing
savings-investment gap, unsatisfactory collection of revenue target,
infrastructural underdevelopments, and institutional weaknesses.
The main objective of Bangladesh Bank's monetary policy is price
stability, alongside supporting inclusive output and employment
growth.
The monetary program for H2 FY17 takes into account the recent
economic and financial sector developments and will target a
monetary growth path aiming at keeping average inflation below 5.8
percent.

21. Global Developments
Global growth is expected to pick up to 3.4 percent in 2017 and 3.6
percent in 2018, according the IMF World Economic Outlook Update,
January 2017.
Growth in emerging market and developing economies is expected
to rise slightly in 2017 to 4.5 percent.
According to the latest IMF and World Bank projections, global
inflation is on an upward trajectory, edging up from their recent lows.
Commodity prices are expected to rise in 2017, with oil prices
increasing by over 20 percent, following a decline of over 15 percent
in 2016.

23. Economic Growth
Several indicators point to robust economic activity in the first half
of FY17.
Private credit growth at around 15-16 percent , with strong demand
coming from trade, construction, and small and medium enterprise
(SME) sector that helps productivity and job creation.
Medium and large-scale manufacturing industry also grew robustly.
BB's econometric model estimate, and sectoral analysis, growth is
projected to be above 7 percent.

24. Trend in Inflation
CPI inflation has been steadily coming down to 5.03 percent in
December 2016, pulling down annual average to 5.5 percent.
Non-food inflation has eased to 4.5 percent in December, down
from 7.1 percent a year ago.
According to the BB's latest inflation expectation survey of
December 2016, the one-year-ahead inflation expectation hovers
around 6 percent.
Average inflation is projected to be within 5.3-5.6 percent in June
2017.

26. Money Supply and Credit Growth
The key objectives of the monetary program and policies for the
H1 FY17 are largely met. Broad money (M2) growth stood at 13.8
percent in November 2016, against the programmed ceiling of 14.8
by December 2016.
Private sector credit grew by 15.0 percent in November.
Credit to the public sector, has declined by 1.3 percent in
November 2016, far below the programmed ceiling of 10.8 percent
growth.
During July-November, 2016, net NSC sales, at Taka 203 billion,
has already exceeded the full-year target of Taka 196 billion in FY17.

27. Interest Rate Policy
The trend in interest rate has remained stable over the first half of
the current fiscal year.
During June-November 2016, the average (weighted) lending and
deposit rates have declined by 45 and 25 basis points to 9.94 and
5.29 percent, respectively, leading to a narrowing of average spread
by 20 basis points to 4.65 percent.
The decline in interest rates reflects favorable inflation
performance, ample liquidity, and an increase in competition in the
banking system.
Bangladesh Bank's policy rates will be kept unchanged at the
current level, with repo rate at 6.75 percent and reverse repo rate at
4.75 percent.

29. Current Account Balance
The current account balance recorded a deficit of USD 0.7 billion during July-
November 2016, whereas a surplus of USD 1.3 billion was observed during the
same period of previous fiscal year.
Trade deficit increased by 12.52 percent to 2777 million USD in July-October
2016 from 2468 million USD in July-October, 2015.
Export increased by 6.78 percent whereas import increased by 7.93 percent
during July-October 2016.
The current account balance exhibited a surplus of 1241 million USD in July-
October 2015, whereas it shows a deficit of 16 million USD in July-October
2016.
A declining trend is observed in the Inflow of workers remittance which is
declined by 15.65 percent to 5208.12 million USD in July-November 2016 from
6174.59 million USD in July-November 2015.
In November 2016, inflow of remittance declined by 16.73 percent to USD
951.37 million .
Receipts of workers’ remittance inflow in October 2016 decreased by 8.56
percent and stood at USD 1.01 billion as compared to September 2016.

30. Capital Market Developments
Capital markets are showing increasing buoyancy.
The Dhaka Stock Exchange Broad Index (DSEX) has increased by 23
percent.
Stock market capitalization in Bangladesh can play an important role in
financing long-term investments.
To ensure that capital market can finance long term investment banks need
to upgrade their surveillance of loan usages of their customer borrowings.

32. Non-Performing Loan
Crisis in the banking sector has made the financial sector in Bangladesh worst
among the emerging Asian countries reflecting the poor risk management
ability of the central bank.
The running crisis in the banking sector mainly due to increase in default loan
reflects the institutional weakness of the financial system in the country.
Continuous default loans cause increased cost of fund and shortfall in capital
in the banks. This situation in the State Owned Commercial banks (SCBs) and
Development Financial Institutions (DFIs) cause huge capital shortfall every
fiscal year.
The banking sector indicators showed that during first quarter of FY17, gross
non-performing loan (NPL) ratio increased by 10.34 percent in September
2016 from 10.06 percent in June 2016.

33. The ratio of net NPL in the banking sector declined to 2.77 percent from
2.81 percent during the same period due partly to some shrink in provision
shortfall.
The Capital adequacy ratio (CAR) remained unchanged at10.3 percent
in September 2016.
The spread of monthly weighted average interest rates for all banks fell
to 4.76 percent in September 2016 from 4.91 percent in June 2016 while
the weighted average call money rate decreased marginally from 3.70
percent in June 2016 to 3.64 percent in September 2016.
Return on assets (ROA) declined from 0.77 percent in December 2015
to 0.44 percent in June 2016.

35. Key Challenges for Monetary Policy of Bangladesh
There Exist a Non-Monetized Sector - In Bangladesh there is an existence of
non monetized economy in large extent people areas where many of the transaction
are of the barter type and not monetary type.
Excess Non Banking Financial Institutions (NBFI) - NBFIs do not come under
the purview of a monetary policy and thus nullify the effect of a monetary policy.
Existence of Unorganized Financial Markets - In many developing countries
the financial markets are in unorganized nature and in backward conditions where
people like money lenders, traders, and business actively take part in money
lending, but unfortunately they are not under the purview of a monetary policy and
creates hurdle in the success of a monetary policy.
Higher Liquidity Hinders Monetary Policy - If the monetary policy increase
the CRR or SLR, it does not deter commercial banks from credit creation, so the
existence of excess liquidity due to high deposit base is a hindrance in the way of
successful monetary policy.

36. Money Not Appearing In an Economy - Rich people, traders, business
and other people prefer to spend rather than to deposit money in the bank.
This money is used for buying precious metals like gold silver, ornaments,
and land and in speculation. That’s why money in not appearing in an
economy.
Time Lag Affects Success of Monetary Policy - The success of the
monetary policy depends on timely implementation of it. In many cases
unnecessary delay is found in implementation of the monetary policy which
effects the success of monetary policy.
Monetary and Fiscal Policy Lacks Coordination - As both the policies
are prepared and implementation by two different authorities, there is a
possibility of non coordination between these two policies which can harm
the interest of the overall economic policy.

38. Recommendations of our analysis
Capital markets should be expanded and organized enough to
succeed the monetary policy.
The credit control mechanisms like open market operation, bank
rate, etc. should be effective,
A narrow bill market should make the discount rate effective.
Banking habits should be developed.
Steps should be taken to abolish the existence of liquidity trap.
To run the monetary policy smoothly and effectively, it is essential
to pay sufficient attentions to increase the GDP.

39. Considering the recent major challenges it seems that an
investment friendly monetary policy is needed more than an inflation
targeting policy in the present context.
The decreasing growth in private sector credit does not meet the
investment demand. As a result, both the private investment and the
implementation of annual development program remain far away
from the target.
The central bank may demonstrate its prudence while harmonizing
monetary and fiscal policy through undertaking an expansionary
monetary policy that will ensure private sector credit growth and a
fiscal management that will increase government expenditure in
productive sectors.