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Monetary Policy in Bangladesh
This document is a presentation on monetary policy in Bangladesh by Group 16. It begins with introductions of the group members. The presentation covers topics such as the definition of monetary policy, the tools and transmission mechanisms of monetary policy, impacts of monetary policy on inflation and capital markets, Bangladesh Bank's monetary policy stances and challenges to monetary policy in Bangladesh. The presentation provides an overview of key concepts in monetary policy as well as analysis of monetary policies implemented in Bangladesh.
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Monetary Policy in Bangladesh
- 1. Welcome to ourPresentation
- 2. We are… GroupNo: 16 Name Id No: Gourav Roy 20-059 Al-Amin Khandakar 20-019 Pantho Sarker 20-033 Shahriar Md. Lukman 20-047 Mohammed Gulam Kibria 20-075 Group Figures
- 3. We are Presentingon… Monetary Policy in Bangladesh
- 4. Now you arewith… Gourav Roy Id No: 20-059
- 5. Impacts on capitalMarket Impacts of Monetary Policy on Inflation Justification of the Monetary Policies Recent Monetary Policies by Bangladesh Bank The Bangladesh Experience of Monetary Policy A Justified and Brief Recommendation Challenges to Establish a sound Monetary Policy The End Topics to be Covered… An Overview of Monetary Policy
- 6. What is MonetaryPolicy? Ensuring the Growth and Stability of Money Supply Monetary Policy is a Process Dealing with Maintaining the Optimum Cost of Money The Supply of Money The Availability of Money Developing Policies for Smoothing the Business Trends
- 7. History of MonetaryPolicy by Timeline Chart to show the Dealings of Monetary Policy with Times Early Period Organization of Paper Money Organization of Central Bank Industrialization Period “Jiaoji” originated in China at First as paper money In 1870-1920, economy grew more critical and monetary policies became more expanded Stage 1 Stage 2 Stage 3 Stage 4 T I M E L I N E a) Decisions about coinage system b) Decisions about money In 5000 B.C. The Bank of England in 1964 started officially the normal monetary policy Present Stage Stage 5
- 8. Types of MonetaryPolicy Expansionary Policy Used to reach a targeted price level Appropriate when, Inflation is imbalanced Appropriate when, Economy and Inflation Appropriate when, Recession and Unemployment Types of Monetary policy Contractionary Policy Inflation Targeting Price level Targeting Monetary Aggregates Gold standard Fixed Exchange Rate This approach focuses on monetary quantities which influence Central Bank’s reaction function It’s a special type where the value of national currency is measured on the basis of the reserved gold by a country. The policy is based on maintaining a fixed exchange rate with foreign currency.
- 9. Scopes of Monetarypolicy Short term interest rates Long term interest rates Velocity of money through the economy Exchange rates Bonds and Equities Govt. Spending Financial Derivatives International Capital flows Scopes of MP
- 10. Equilibrium in theMoney Market Quantity of Money Interest Rate 0 Money demand Quantity fixed by the Bangladesh Bank Money supply r2 M2 d M d r1 Equilibrium interest rate Copyright © 2004 South-Western E
- 11. The Tools ofMonetary Policy (MP) Interest rate controls Credit controls Lending to domestic Banks Reserve requirements Secondary reserve requirement Cash reserve requirement Securities requirement Direct Policy Tools Indirect Policy Tools Tools of MP Open market operations
- 12. Now you arewith… SHAHRIAR MD. LUKMAN ID; 20-047
- 13. Transmission Mechanism ofMonetary Policy • The process through which monetary policy decisions affect the economy in general and the price level in particular. Transmission Mechanism Change in Official Interest Rates Affects Banks and Money Market Interest Rates Affects Expectations Affects Asset Prices Affects Saving and Investment Decisions Affects the Supply of Credit Leads to Changes in Aggregate Demand and Prices Affects the Supply of Bank Loans Process of Transmission Mechanism Non Controlled Elements • Changes in Risk Premium • Changes in Bank Capital • Changes in Global Economy • Changes in Fiscal Policy • Changes in Commodity Prices
- 14. Transmission Mechanism ofMonetary Policy Fig: Transmission Mechanism of Monetary Policy
- 15. Repurchasing Securities worth of TK100 Million by Bangladesh Bank Expansionary Monetary Policy Fall in The Commercial Bank’s Cash Rate Peoples’ Borrowing and Spending Increases Aggregate Demand Rises GDP Rises Price Level Rises Transmission Mechanism of Monetary Policy: Hypothetical Example
- 16. • Purchases Securitiesin the Open Market; • Lowers the Central Bank’s Discount Rate; • Lowers Reserve Requirements; Expansionary Monetary Policy • Sells Securities in the Open Market; • Raises the Central Bank’s Discount Rate; • Raise Reserve Requirements; Contractionary Monetary Policy Impacts of Monetary Policy on Capital Markets Interest Rate Rises Interest Rate Decreases Increase in Bond Prices; Higher Levels of Capital Investment; Demand for Domestic Bonds Falls; Decrease in Bond Prices; Lower Levels of Capital Investment; Make Domestic Bonds More Attractive;
- 17. Now you arewith… Md. Gulam kibria ID: 20-075
- 18. Impact of MonetaryPolicy on Inflation • Purchases Securities in the Open Market; • Lowers the Central Bank’s Discount Rate; • Lowers Reserve Requirements; • Lowers Statutory Liquidity Requirements Expansionary Monetary Policy • Sells Securities in the Open Market; • Raises the Central Bank’s Discount Rate; • Raises Reserve Requirements; • Raises Statutory Liquidity Requirements Contractionary Monetary Policy Increase Money Supply Decrease Money Supply Increase consumer’s Money to Spend Deccrease consumer’s Money to Spend Increase Inflation Rate Decrease Inflation Rate
- 19. Frameworks of Bangladesh’sMonetary Policy Developments/Information GDP growth & Inflation Growth of monetary aggregates Liquidity Situation Short-term Interest Rates Foreign Reserves & Exchange Rates Policy Decision Based on market information and judgment of the policy makers Instruments Open market operations (Repo, Reverse Repo and BB bill auctions) Variation in reserve ratios Targets 1. Operating Target Reserve Money 2. Intermediate Target Broad Monet Interest Rate Goals Moderate Inflation Sustainable Growth
- 20. Now you arewith… Al-amin khandakar Id No: 20-019
- 21. Monetary policy Analysisin Bangladesh (Internal sector): 2012 (July) 2013 (January) 2013(July) 2014(January) 7.50% 7.50% 7.00% 7.00% Average Inflation 2012 (July) 2013 (January) 2013(July) 2014(January) 16.50% 17.70% 17.20% 17.00% Broad Money Growth 2012 (July) 2013 (January) 2013(July) 2014(January) 13.80% 16.10% 15.50% 16.20% Reserve Money Growth 2012 (July) 2013 (January) 2013(July) 2014(January) 7.75% 7.25% 7.25% 7.25% Repo Rate
- 22. Monetary policy Analysisin Bangladesh (External Sector): FY 11 FY12 FY 13 FY 14 41.50% 6% 11.20% 16.56% Export Growth Rate FY 11 FY12 FY 13 FY 14 52.10% 2.50% 0.80% 4.40% Import Growth Rate (Shipment) FY 11 FY12 FY 13 FY 14 6.00% 10.20% 12.60% -8.40% Remittance Growth Rate FY 11 FY12 FY 13 FY 14 74.20% 81.80% 77.80% 81.40% Exchange Rate (Tk./USD)
- 23. Challenges of EstablishingBalanced Monetary Policy in Bangladesh: Challenges of Monetary Policy Non- Monetized Sector Non- Banking Financial Institution Unorganize d Financial Market Higher Liquidity Black Money Lack of Honesty Lack of Integrated Interest Rate Structure Time Lag
- 24. Now you arewith… Pantho Sarker ID: 20-033
- 25. Bangladesh Bank’s MonetaryPolicy Stance (For the first half of the FY 2016) BB’s aim is to achieve maximum economic growth with boosting investment using selective easing strategy and ensuring moderate inflation. The success of monetary policy depends on the skillful interaction of these variables by Bangladesh Bank.
- 26. Bangladesh Bank’s MonetaryPolicy Stance (For the first half of the FY 2016) Macro Variables Projected figure (For FY 2016) GDP Growth 7% CPI Inflation 6.2% Urgent redressing of infrastructural and administrative deficiencies Preserving political calm and stability Current Inflation rate is 6.40%
- 27. Bangladesh Bank’s MonetaryPolicy Stance (For the first half of the FY 2016) Money Supply BB has projected to increase the broad money (M2) at 15.6% rate Reserve Money BB has projected to increase reserve money at 15% rate Policy Interest Rate (Repo, Reserve Repo) Remain unchanged, but easing will be considered after point-to-point headline general inflation and core CPI inflation take a sustained declining trend.
- 28. Bangladesh Bank’s MonetaryPolicy Stance (For the first half of the FY 2016) This is a growth supportive monetary policy that promotes investments through the strategy of selective easing. Commercial banks have been motivated and supported in extending loans to the productive and vulnerable sectors at lower interest rates. Green projects and export promotion activities will also avail loan at a lower rate BB’s policy is to reduce the fluctuation in the exchange rate as much as possible. Use of Selective Easing Method Exchange Rate
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