Recent Monetary Policy Statement of Bangladesh Bank

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Recent Monetary Policy Statement of Bangladesh Bank (July 2009): An Analytical Commentary

Debapriya Bhattacharya
Distinguished Fellow, CPD

Towfiqul Islam Khan
Senior Research Associate, CPD

Released to the media on 23 July 2009

House 40C, Road 11, Dhanmondi R/A, Dhaka 1209, Bangladesh Tel: +88029141703, 9141734; Fax: +88028130951 E-mail: info@cpd.org.bd; Website: www.cpd.org.bd

Recent Monetary Policy Statement of Bangladesh Bank (July 2009): An Analytical Commentary by CPD

Acknowledgment
The paper is prepared under Centre for Policy Dialogue’s (CPD’s) programme titled Independent Review of Bangladesh’s Development (IRBD).

The authors would like to acknowledge the valuable research support provided by Mr Tapas Kumar Paul, Research Associate; Mr Md Tariqur Rahman, Research Associate; and Mr Shouro Dasgupta, Intern, CPD.

The authors have benefited advice and comments from Professor Rehman Sobhan, Chairman, CPD and Professor Mustafizur Rahman, Executive Director, CPD.

Support of Mr A H M Ashrafuzzaman, Senior System Analyst, CPD is also acknowledged.

The authors are responsible for the analyses and interpretations presented in this report. Comments and feedback may be sent to .

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Recent Monetary Policy Statement of Bangladesh Bank (July 2009): An Analytical Commentary by CPD

Contents
1. INTRODUCTION .................................................................................................................................... 4 2. EVOLUTION OF MONETARY POLICY STANCE: AN OVERVIEW ................................................................ 5 Policy Stance in FY2008-09 ........................................................................................................... 5 Policy Stance for H1 FY 2009-10 ................................................................................................... 6 3. A REVIEW OF THE MACROECONOMIC OBJECTIVES .............................................................................. Inflation – Possibility of Kickback? ............................................................................................... Kick Back from Monetary Expansion ............................................................................................ Financing Budget Deficit – The Compositional Issue .................................................................... External Sector– Subdued Outlook............................................................................................... Growth – “Conservatively Positive” Target .................................................................................. 6 6 8 8 8 8

4. DEPLOYMENT OF MONETARY POLICY INSTRUMENTS........................................................................... 9 5. TRENDS IN MONETARY AGGREGATES: TARGETS AND ACHIEVEMENTS ................................................ 10 6. ANCHOR(S) OF THE MONETARY POLICY ............................................................................................... 11 7. TWO IMPORTANT ASPECTS .................................................................................................................. 12 7.1 Excess liquidity ...................................................................................................................... 12 7.2 Agricultural Credit Policy ........................................................................................................ 12 8. A SELECT SET OF MISSING ISSUES ......................................................................................................... 8.1 Energising Industrial Term Loan ............................................................................................. 8.2 Addressing Non-performing Assets ........................................................................................ 8.3 Reducing Interest Rate Spread ............................................................................................... 8.4 Integrating...
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