Report on Monetary Policy of Bangladesh

3467 Words Apr 11th, 2011 14 Pages
1 Introduction:

Monetary policy is the process by which the central bank of a country controls the supply of
Money, the availability of money, and the cost of money or rate of interest, in order to attain a set of objectives oriented towards the growth and stability of the economy. Fiscal policy induced “demand management” approach as propagated by Keynes, which was popular in the post‐Great Depression period, later made way to monetary policy led “stabilization” approach in the period of high inflation of 1970s. While traditional fiscal policy solutions were useful in confronting unemployment by increasing spending and cutting taxes, counter‐acting inflation entailed reducing spending or raising taxes.

The growing importance of
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BB is motivating banks to expand lending to these under-served sectors both as business case and as CSR obligation; through bank branches as well as by ‘branchless banking’ in creative, innovative partnerships with MFIs, mobile phone companies and other IT based networks for cost effective remote delivery of financial services.

A bank’s capacity of handling and intermediating large financial flows depend crucially on its capital base and quality of risk management. To enhance this capacity in banks in Bangladesh, BB has introduced mandatory Basel II based capital requirements for banks from 2010 after a year in trial run; steps have also been taken to develop and strengthen risk assessment capacities including forward looking stress testing in the banks as well as in BB supervision departments. To sum up, BB’s routine half yearly monetary policy formulation exercises aimed at maintaining price stability while supporting broad based inclusive and environmentally sustainable growth are being underpinned by concurrent efforts to foster environment and technical infrastructure enhancing effectiveness of monetary policies. As always, BB will stand ready to respond promptly with appropriate modification in monetary stance required by any exigency in unfolding developments in the domestic and
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