Monetary Policy of Bangladesh and Its Impact on Economy

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Monetary Policy of Bangladesh and Its Impact on Economy

By | July 2010
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MONETARY POLICY OF BANGLADESH AND ITS IMPACT ON ECONOMY

Monetary policy is concerned with the measures taken to control the supply of money, the cost and availability of credit. Further, it also deals with the distribution of credit between the uses and the users, the lending and borrowing rates of the banks. In a developing country like ours the monetary policy has been effectively used as a tool for overcoming depression and inflation. As Prof R. Prebisch writes “The time has come to formulate a monetary policy which meets the requirement of economic developments which fit in to its framework perfectly.” Along with the economic growth the monetary policy has also to ensure price stability, as excessive inflation has an adverse distribution effect and hinders the economic development.

To understand the monetary policy of Bangladesh it is important to understand the objectives or goals, targets and instruments of monetary policy. The goals refer to the objective which may be price stability or economic growth. Whereas the targets refer to the variables such as supply of money, bank credits and interest rates. The instrument ate the changes in supply of currency, bank rates and other interest rates, open market operation, changes in reserve requirement, selective credit contras.

PRESENT MONETARY POLICY OF BANGLADESH:

The central bank of Bangladesh has actually followed a policy of restring growth rate of the economy. It is almost two years mow, that the central bank of Bangladesh has made a switch to a concretionary monetary policy. Bangladesh Bank is bit reluctant about admitting the term contractionary; it favours the term “causious”. It points out a reason, that there is no contruction in money or credit supply.

It this policy, Bangladesh Bank raise the reserve requirement as a result the deposits of banks contracts and availability of credit reduces and cost of credit increase as the interest rate rises. IMPACT OF MONETARY POLICY IN OUR ECONOMY...
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