Monetary Policies

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Monetary Policies are framed by the central bank bangladesh bank keeping in view the macro-objectives, such as controlling inflation, enhancing growth and generating jobs, and alleviation of poverty.

While framing the monetary policy which usually lasts for the coming months, Bangladesh Bank takes into consideration global, domestic and macroeconomic conditions and outlook. Bangladesh Bank makes adjustment in its monetary policy if there is any major change in domestic and global economic situation within that next months.

It was observed by the Bangladesh Bank that 'while the global growth prospects remain highly uncertain in key trading partners the USA was showing recovery'. This helped Bangladesh in framing a monetary policy to support its economy. Monetary policy takes especial care of inflationary pressure, the general price level and also of food price inflation. Monetary policy tries to tame inflationary pressure so that the economy does not face severe ups and down in its economic activities. Food and commodity price inflation are equally important especially for an economy where poor people are concentrated like in Bangladesh.

Bangladesh Bank designed its monetary policy for next one year to monitor credit and monetary expansion keeping in view the price situation, domestic production, supply-chain, global economic movement and country’s purchasing power (international reserves situation). The principal target of monetary control was broad money (M2), ie, the sum of currency in circulation and total deposits of money in banks. The targeted growth of M2 depend on the realistic forecast of the growth rate of real GDP, an acceptable rate of inflation and an attainable level of international reserves. Bank rate, Open Market Operations (OMO), discount rate policy and Statutory Reserve Requirement (SRR) are used by Bangladesh Bank depending on situation. During 2006 to 2019 Bangladesh Bank formulated a half-yearly monetary policy stance. After COVID pandemic BB turned back to yearly monetary policy stance.

In the previous fiscal year of 2021 fixed its money supply (M2 target) of 15.6 percent based on projected economic growth of 8.2 percent with minimizing price level at 5.4 percent and finally the target achieved 13.6 percent. Under monetary policy for 2022, money supply (M2) targeted at 15.0 percent based on projected economic growth of 7.2 percent with minimizing price level at 5.3 percent.

Under expansionary and accommodative monetary policy stance during FY 2021 of COVID Pandemic period, raise loanable fund flows for the banks by increasing money supply (M2). During this period repo rate, reverse-repo rate and bank rate were downsized to 4.00%, 4.75% and 4.00% by reducing 50, 75 and 100 basis points respectively. During the Pandemic loan installment repayments were deferred. In addition, to keep economic activities at expected level 28 government stimulus packages (including 12 for banking industries) amounting to BDT 1.35 trillion were implemented. [Amirul Islam Chowdhury]

Bibliography 'Executive Summary of Monetary Policy Statement', 2021-2022.