3. WHAT IS MONETARY
POLICY?
ways of
The term used by economists to describe
managing the supply of money in an economy.
Monetary policy
isaprocess
Dealingwith
Thesupply
of Money
Maintaining
theOptimum
Costof
Money
The
availability
of Money
Ensuringthe
growthand
stability of
MoneySupply
4. 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.
5. TOOLS OF MONETARY POLICY:
Major instruments of monetary control available with Bangladesh bank are
the bank rate, open market operations, rediscount policy and statutory
reserve requirement.
The methods of credit control-
1. Bank rate policy.
2. Open market policy etc.
3. Variation of reserve ratio.
4. Direct action .
5. Publicity.
6. Objectivesof Monetary Policyin 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.
8. LOOSE MONETARY POLICY
I f the Bangladesh Bank (BB) implements a
loose monetary policy (often called
expansionary) , the supply of credit
increases and its cost falls.
Tight monetarypolicy
I f the BB allows a tight monetary policy (often
called contractionary), the supply of credit
decreases and its cost increases.
10. HOW IS THE MONEY SUPPLY
CONTROLLED
T h e Central Bank generally uses three tools
Open market operation (OMO)
Discount rate (DR)
Reserve ratio (RR)
11. LIMITATIONS OF MONETARY
POLICY
Does not work when aggregate demand needs to be
stimulated through direct government spending
(great depression)
12
Works on the economy through indirect
channels.Therefore, often suffers from lag to have
impact
M a y be dominated by fiscal policy
Wrong policy may result in severe damage for the
economy
12. RECOMMENDATION:
In Bangladesh, 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.
To run the monetary policy smoothly and effectively, it is essential to
pay sufficient attentions to increase the GDP
13. CONCLUSION
13
• The Monetary Policy In Bangladesh Aim At Growth, Stability
And Social Justice. After The Keynesian Revolution In
Economics, Many People Accepted Significance Of Monetary
Policy .
• Although 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.