...Assignment on Monetary Policy in Bangladesh INTRODUCTION: Monetary Policy 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 land 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 theGovernor, 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...
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...of Financial system of Bangladesh The financial system of Bangladesh is comprised of three broad fragmented sectors: Formal Sector, Semi-Formal Sector, Informal Sector. The sectors have been categorized in accordance with their degree of regulation. The formal sector includes all regulated institutions like Banks, Non-Bank Financial Institutions (FIs), Insurance Companies, Capital Market Intermediaries like Brokerage Houses, Merchant Banks etc.; Micro Finance Institutions (MFIs). The semi formal sector includes those institutions which are regulated otherwise but do not fall under the jurisdiction of Central Bank, Insurance Authority, Securities and Exchange Commission or any other enacted financial regulator. This sector is mainly represented by Specialized Financial Institutions like House Building Finance Corporation (HBFC), Palli Karma Sahayak Foundation (PKSF), Samabay Bank, Grameen Bank etc., Non Governmental Organizations (NGOsand discrete government programs. The informal sector includes private intermediaries which are completely unregulated. [pic] The financial market in Bangladesh is mainly of following types: Money Market: The primary money market is comprised of banks, FIs and primary dealers as intermediaries and savings & lending instruments, treasury bills as instruments. There are currently 15 primary dealers (12 banks and 3 FIs) in Bangladesh. The only active secondary market is overnight call money market which is participated by...
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...Introduction: The development of economy of any country depends mostly on the establishment of sound, effective and efficient financial system in that country. A well-developed financial system plays an important role in accelerating economic growth by mobilizing savings and facilitating investment in an efficient manner (Mu, 2007). Financial market is composed of different markets- Money Market, Capital Market, Derivative Market etc. All the markets play an interactive role for the development of economy by formation of capital through mobilizing funds, industrialization of economy through supplying adequate funds, providing services, linking investors to the industrial entrepreneurs etc. Besides, this requires sound regulatory framework, sound and investment sensitive administrative infrastructure, fiscal supports for making their role effective for economic development. Bond market in Bangladesh: The financial sector of Bangladesh is characterized by the dominating presence of commercial banks, especially the Nationalized Commercial Banks (NCBs). Although, a paradigm shift in the degree of dominance has been observed of late with the emergence of private commercial banks-traditional and shariah based banking. Banking sector accounted for about 75 percent of the total financial system. Most of the available funds go to the NCBs in the form of deposits and channeled into lending. However, the NCBs had substantial nonperforming loan (NPL) portfolios. Both insurance...
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...accumulation of foreign exchange reserves in recent months, there has been a growing interest in Bangladesh on the alternative uses of its reserves. However, different reserves adequacy measures based on global best practices confirm that its reserves holding is not markedly higher than what is required. The country’s reserves stand higher than the adequate level only when one considers the current account aspects of reserves benchmark which is perhaps appropriate for the country as its financial system is still autarkic. The dynamics in its balance of payments account also supports the fact. The paper highlights the fact that Bangladesh’s reserves build-up is the result of an ‘investment drought’ in the country. This is partly due to its underdeveloped financial systems, and partly due to other structural problems in the economy – entailing difficulties in properly channelling national savings to investments. As the Bangladesh central bank’s sterilised intervention increases, so will its cost of reserves accumulation. The reason is the interest rate arbitrage between Bangladesh and the United States. The United States government securities market, that absorbs the lion’s share of developing economies reserves, has been offering lower yields following the collapse in interest rate in the country in recent times. Nevertheless, the apparent spread between the United States Treasury and Bangladesh Treasury rates might be not that high in real terms if one weighs in Bangladesh’s certain...
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...Monetary Policy Statement Team Chief Advisor: Atiur Rahman, PhD, Governor Policy Advisors: Md. Abul Quasem, Deputy Governor Abu Hena Mohd. Razee Hassan, Deputy Governor S.K. Sur Chowdhury, Deputy Governor Nazneen Sultana, Deputy Governor Allah Malik Kazemi, Change Management Advisor Faisal Ahmed, PhD, Senior Economic Advisor Lead Author: Biru Paksha Paul, PhD, Chief Economist Analysts and Contributors: Md. Akhtaruzzaman, PhD, Economic Advisor Begum Sultana Razia, GM, Chief Economist’s Unit (CEU) Md. Abdur Rouf, GM, Monetary Policy Department (MPD) Md. Ezazul Islam, PhD, DGM, CEU Md. Abdul Kayum, DGM, MPD Forecasting and Support Team: Dr. Sayera Younus, DGM, MPD Mahmud Salahuddin Naser, DGM, CEU Muhammad Amir Hossain, PhD, DGM, SD Md. Habibour Rahman, JD, CEU Md. Abdul Karim, JD, MPD Md. Omor Faruq, JD, MPD Syeda Ishrat Jahan, JD, CEU Khan Md. Saidjada, JD, CEU Rubana Hassan, JD, MPD Bushra Khanam Luna, DD, CEU Md. Ahsan Ullah, DD, MPD Coverist: Tariq Aziz, AD, DCP Monetary Policy Statement January-June 2016 Monetary Policy Department and Chief Economist’s Unit Bangladesh Bank www.bb.org.bd Table of Contents Highlights ................................................................................................ 1 Core Objectives ...................................................................................... 3 Global Developments ........................................................................... 3 Economic Growth...
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...Monetary Policy Statement Team Chief Advisor: Atiur Rahman, PhD, Governor Policy Advisors: Md. Abul Quasem, Deputy Governor Abu Hena Mohd. Razee Hassan, Deputy Governor S.K. Sur Chowdhury, Deputy Governor Nazneen Sultana, Deputy Governor Allah Malik Kazemi, Change Management Advisor Faisal Ahmed, PhD, Senior Economic Advisor Lead Author: Biru Paksha Paul, PhD, Chief Economist Analysts and Contributors: Md. Akhtaruzzaman, PhD, Economic Advisor Begum Sultana Razia, GM, Chief Economist’s Unit (CEU) Md. Abdur Rouf, GM, Monetary Policy Department (MPD) Md. Ezazul Islam, PhD, DGM, CEU Md. Abdul Kayum, DGM, MPD Forecasting and Support Team: Dr. Sayera Younus, DGM, MPD Mahmud Salahuddin Naser, DGM, CEU Muhammad Amir Hossain, PhD, DGM, SD Md. Habibour Rahman, JD, CEU Md. Abdul Karim, JD, MPD Md. Omor Faruq, JD, MPD Syeda Ishrat Jahan, JD, CEU Khan Md. Saidjada, JD, CEU Rubana Hassan, JD, MPD Bushra Khanam Luna, DD, CEU Md. Ahsan Ullah, DD, MPD Coverist: Tariq Aziz, AD, DCP Monetary Policy Statement January-June 2016 Monetary Policy Department and Chief Economist’s Unit Bangladesh Bank www.bb.org.bd Table of Contents Highlights ................................................................................................ 1 Core Objectives ...................................................................................... 3 Global Developments ........................................................................... 3 Economic Growth...
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...Objectives of the paper: With giving an overview of what the monetary policy really is and narrating how the central bank formulates the monetary policies and takes the necessary steps for its implementation in Bangladesh, this paper targets to analyze the impact of monetary policy on the inflationary situation. Methodology: The study depends on I. Extensive literature review of external sources on central banks on formulation and implementation ofmonetary policy for the country II. Publications of Bangladesh Bank Scope of the paper: 1. First of all, monetary policy is a deep sea to swim through. Though Bangladesh practices and implements a limited number of instruments, the mix is always complex to grab the main idea behind it. Extensive analysis of the mix is beyond the scope of the paper. 2. Framing of indices of central bank policies is beyond the limit of this paper. 3. Structured data is hard to collect from the departments of Bangladesh Bank, so complex calculations and data analysis is deliberately avoided. Bangladesh Bank (BB): The central bank of the country, was established as a corporate body by the Bangladesh Bank Order, 1972 (P.O. No. 127 of 1972) with effect from 16 December, 1971 by acquiring the liabilities and assets of erstwhile State bank of Pakistan in East Pakistan. Bangladesh Bank is the central bank of the country | | There is a cross departmental committee on monetary policy (MPD) headed by a deputy governor, which includes the...
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...of the term paper Monetary Policy Reason of publishing 04 Types of Monetary Policy 05 Monetary Policy in Bangladesh 06 Tools & Strategy of Monetary Policy 06 Major tools used by Bangladesh Bank 07 Policy Target 12 Limitations of Monetary Policy 13 Findings of the study Chapter-03 03 Scope & Objective of Monetary Policy Chapter- 02 03 14 Conclusion 14 Bibliography 14 Chapter- 01 Introduction “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. It is referred to as either being expansionary or contractionary, where an expansionary policy increases the total supply of money in the economy more rapidly than usual, and contractionary policy expands the money supply more slowly than usual or even shrinks it. Expansionary policy is traditionally used to try to combat unemployment in a recession by loIring interest rates in the hope that easy credit will entice businesses into expanding. Contractionary policy is intended to slow inflation in hopes of avoiding the resulting distortions and deterioration of asset values. In this report I tried to show that how monetary policy is related to the economy...
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...Executive Summary Over the last few years, the capital market of Bangladesh has witnessed a haughty growth which is not in line of development in the real sector of the economy. Although, the Securities and Exchange Commission (SEC) of Bangladesh has tried to correct the irregular behavior observed in the market, very often it is argued that lack of proper and firm decisions from the regulator’s side has contributed to make the market more unstable rather than to reduce it. The paper attempts to identify the inter relationship between the capital market and money market. The Capital Market of Bangladesh is passing tough times since December 2010 as high volatility is eroding the capital of Thousands of Investors that might turn into social instability. This fall is caused by many factors that I tried to identify and tried to link up between causal factors of market crash and regulatory failure and also tried to find out the inter-relationship between capital market and money market. Primary issue related problems was faulty listing methods and IPO overpricing, few numbers of new listings, revaluating assets before company listing, high premium in issuance of right share/Repeat IPO etc. while secondary market related problems was stock splits and stock price manipulations through block trading, circular trading and insider trading. Investor’s greed and irrational behavior played a big rule to make the stock prices sky rocking as they were crazy to buy shares without judging...
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...------------------------------------------------- The Monetary Policy of Bangladesh Introduction 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 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. 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...
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...Multinational Environment- Bangladesh Submitted by: Niraj Kharel MBA 4th trimester Business Strategy Introduction Bangladesh is emerging as a country capable of producing advanced products like pharmaceuticals, ships and electronics. The world’s eighth largest country in terms of population with approximately 160 million inhabitants will most likely remain heavily dependent on labor-intensive and export-oriented industries for the foreseeable future. However, this is only part of the picture, as an increasing number of companies today look on Bangladesh as a market with growing potential. There are of course still a number of challenges experienced by companies doing business in Bangladesh. Bangladesh has immense potential; people have a positive frame of mind; while the main bottlenecks are to be found in the volatility in the macro & political environment and there are several multinational environmental factors which are discussed below: 1. Government laws, regulation and policies of Bangladesh The government of Bangladesh (GOB) gradually developed seed laws, policies, and regulations for the seed sector that eventually, through various amendments, expanded regulatory oversight over both the private and public sector, and all seed varieties and the governments’ laws, regulation and policies are: * Monetary and Fiscal Policy: 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...
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...Bangladesh began implementing structural policy reforms to increase the market orientation of its economy in the late 1970s. The authorities adopted significant reforms in agriculture, industry, and trade, and also pursued reforms in the financial and infrastructure sectors. These reforms helped accelerate growth from an annual average of 3 percent in the 1970s to 4 percent in the 1980s and to 5 percent in the 1990s. Sound and sustained macroeconomic management ensured macroeconomic stability, contributing to Bangladesh’s ability to maintain one of the lowest growth volatilities in the world. Major Policy Reforms Contributed to Growth Acceleration: * Agricultural policy * Industrial policy * Trade policy * Infrastructure policy * Financial policy * Macroeconomic policies * Human Development policies Macroeconomic policies Following the initial debacle of the 1972–75 periods, Bangladesh was able to maintain a broad degree of stability of macroeconomic policies, as reflected in relatively low inflation and a stable real exchange rate. Fiscal, monetary and exchange rate management was broadly on track for most of the period until around the end of the 1990s. This long-term good macroeconomic management served Bangladesh well, contributing to incentives for private investment and exports. Inflation has now been reduced to 3–4 percent annually (Chart 7). The correction of the macroeconomic imbalances started in the late 1970s and continued...
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...Analysis of Changing Roles of Bangladesh Bank: Industrialization perspective 1. Introduction The vision of the Bangladesh Bank is to develop continually as a forward looking central bank with competent and committed professionals of high ethical standards, conduct monetary management and financial sector supervision to maintain price stability and financial system robustness, support rapid broad based inclusive economic growth, employment generation and poverty eradication in Bangladesh. The mission is to formulate monetary and credit policies, manage currency issue and regulate payment system, manage foreign exchange reserves and regulate the foreign exchange market, regulate and supervise banks and financial institutions and advise the government on interactions and impacts of fiscal, monetary and other economic policies. Bangladesh Bank maintains an interest rate structure that provides fair return on financial assets, supports growth in the real sector and promotes development of markets in bond and securities. The central bank provides precise prudential regulatory, risk management and disclosure framework to protect solvency and liquidity of individual institutions and stability of the overall financial system, acting as lender of last resort if and when needed. The central bank maintains liquidity conditions and credit policies ensuring adequate credit flows at market driven flexible interest rates for all productive economic activities,...
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...bubbles. But, in their view, monetary policy should respond to asset bubbles in a cautious and moderate manner in order to avoid economic distortions. Some others argue against the role of central bank in bursting bubbles. They say bubbles generally arise out of some combination of irrational exuberance, jumps forward in technology and financial deregulation, for which the connection between monetary conditions and the rise of bubbles is tenuous. However, the central bank is at the centre point in this debate. The recent crash in the stock market in Bangladesh is also associated with some policies of the central bank. The aim of this article is to analyse the following two aspects: (i) whether the monetary policy response was appropriate to the rise and the recent collapse of the bubble, and (ii) whether the behaviour of financial institutions was optimal to the policy response. Commercial banks have been involved heavily in the stock market business in the last few years. Allowing merchant banking has exaggerated the situation. They became the key player in the stock market. Undoubtedly, any policies to control banks' exposure to the stock market could have significant impact on the capital market. Monetary easing during last two or more years (money supply was more than 22 percent during the period) could have helped stock market remain buoyant during these days. Perhaps, Bangladesh Bank (BB) was not much aware about banks' exposure to the stock market. Because, surprisingly...
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...Development of Non Bank Financial Institutions to Strengthen the Financial System of Bangladesh - MONZUR HOSSAIN∗ -MD. SHAHIDUZZAMAN∗ Abstract Non-bank financial institutions (NBFIs) represent one of the most important parts of a financial system. In Bangladesh, NBFIs are new in the financial system as compared to banking financial institutions (BFIs). Starting from the IPDC in 1981, a total of 25 NBFIs are now working in the country. As on June 30, 2001 the total amount of paid up capital and reserve of 24 NBFIs stood Tk.6901.8 million (BB, 2002). The NBFIs sector in Bangladesh consisting primarily of the development financial institutions, leasing enterprises, investment companies, merchant bankers etc. The financing modes of the NBFIs are long term in nature. Traditionally our banking financial institutions are involved in term lending activities, which are mostly unfamiliar products for them. Inefficiency of BFIs in long-term loan management has already leaded an enormous volume of outstanding loan in our country. At this backdrop, in order to ensure flow of term loans and to meet the credit gap, NBFIs have immense importance in the economy. In addition, non-bank financial sector is important to increase the mobilization of term savings and for the sake of providing support services to the capital market. The focus of this paper is to highlight the necessity and importance of NBFIs to strengthen the financial system for rapid economic development of the country. 1. Introduction...
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