Monetary Policy of Bangladesh
Lecture Synopsis: 2
NSU, MBA Program
Dr. Salehuddin Ahmed(Sld)
BUS 530 (Section – 1 & 2); SPRING, 2013

Introduction

Both in developed and developing economies, monetary policy seeks to maintain price stability accompanied by sustained stable output growth in the face of internal and external shocks that are faced from time to time. For developing economies like Bangladesh with significant underemployment/under exploitation of production factors, stimulating higher growth is imperative for rapid reduction and eventual elimination of endemic poverty, and is therefore an overriding priority. The stimulus provided by monetary policy in accommodating the growth aspirations must not however jeopardize macroeconomic stability and future growth; and the pursuit of monetary policy comprises of various supportive measures to attain the highest sustainable output growth while adjusting smoothly to internal and external shocks that the economy encounter from time to time.

History and Objectives of Bangladesh Monetary Policy

Objectives of the monetary policy of the Bangladesh Bank as outlined in the Bangladesh Bank Order, 1972 comprise of attaining and maintaining of price stability, high levels of production, employment and economic growth.

In the decades of seventies and eighties, monetary policy in Bangladesh was conducted with full direct control on interest rates and exchange rates, as also on the volumes and directions of credit flows.

The situation began changing in the nineties with the abolition of directed lending and gradual liberalization of interest rates; the change process culminating in transition to market based exchange rate of Taka from 31st May 2003. From then on, interest rate and exchange rate are both market driven, exchange rate is no longer in the role of nominal anchor for prices.

The Policy