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Bangladesh Bank: Headquarters Established Governor Central Bank of Currency
Bangladesh Bank: Headquarters Established Governor Central Bank of Currency
Bangladesh Bank
Bangladesh Bank Monogram
Headquarters Dhaka
Established 16 December 1971
Governor Salehuddin Ahmed
Central Bank of Bangladesh
Currency Taka
ISO 4217 Code BDT
Website 1!
Preceded by S"a"e Bank o# $akis"an
1
GAL A XY
History of Bangladesh bank
A#"er "he libera"ion %ar& and "he e'en"ual inde(endence o# Bangladesh& "he )o'ernmen"
o# Bangladesh reorgani*ed "he Dhaka branch o# "he S"a"e Bank o# $akis"an as "he cen"ral
bank o# "he coun"r+& and named i" Bangladesh Bank, This reorgani*a"ion %as done
(ersuan" "o Bangladesh Bank Order& 1972& and "he Bangladesh Bank came in"o e-is"ence
%i"h re"ros(ec"i'e e##ec" #rom 16"h December& 1971,
The general su(erin"endence and direc"ion o# a##airs and business o# "he Bank are
en"rus"ed "o a nine member Board o# Direc"ors %hich consis"s o# "he )o'ernor as
chairman& a De(u"+ )o'ernor& "hree senior go'ernmen" o##icials and #our (ersons ha'ing
e-(erience and (ro'en ca(aci"+ in "he #ields o# banking& "rade& commerce& indus"r+ or
agricul"ure . all nomina"ed b+ "he go'ernmen", The board& %hich is "he highes" (olic+
making bod+& mee"s a" leas" si- "imes a +ear and a" leas" once e'er+ /uar"er under "he
chairmanshi( o# "he )o'ernor, The )o'ernor& a((oin"ed b+ "he go'ernmen" as "he chie#
e-ecu"i'e o##icer& direc"s and con"rols all "he a##airs o# "he Bank on behal# o# "he Board,
2
GAL A XY
The broad objectives of the Bank are:
a0 To regula"e "he issue o# "he currenc+ and "he kee(ing o# reser'es1
b0 To manage "he mone"ar+ and credi" s+s"em o# Bangladesh %i"h a 'ie% "o s"abili*ing
domes"ic mone"ar+ 'alue1
c0 To (reser'e "he (ar 'alue o# "he Bangladesh Taka1
d0 To (romo"e and main"ain a high le'el o# (roduc"ion& em(lo+men" and real income in
Bangladesh1 and "o #os"er gro%"h and de'elo(men" o# "he coun"r+2s (roduc"i'e resources
#or "he na"ional in"eres"
unctions
This de(ar"men" is basicall+ res(onsible #or issuing (ruden"ial guidelines "o ensure a
sound banking s+s"em in "he coun"r+, The ma3or areas co'ered are4
1, De"ermina"ion o# ca(i"al ade/uac+ re/uiremen"s& asse" classi#ica"ion and (ro'isioning
s"andards,
2, 5e'ie% and dra#"ing o# banking s"a"u"es,
6, 7raming (olicies regarding 5eser'e 5e/uiremen"s,
4, Su(er'ision o# "he in"ernal con"rol s+s"em o# "he banks,
8, 7ormula"e (olicies %i"h a 'ie% "o res"raining insider lending,
6, De"ermina"ion o# accoun"ing and disclosure s"andard "o "he banks,
7, Ini"ia"e disci(linar+ ac"ion agains" an+ Board or members o# "he Board o# Direc"ors o#
"he banks,
9, Issuance o# direc"i'es and com(liance "hereo# under Banking :om(an+ Ac"& 1991,
6
GAL A XY
!"#ET$%& P"'(C&
!onetary )olicy is "he (rocess b+ %hich "he go'ernmen"& cen"ral bank& or mone"ar+
au"hori"+ manages "he mone+ su((l+ "o achie'e s(eci#ic goals;such as cons"raining
in#la"ion or de#la"ion& main"aining an e-change ra"e& achie'ing #ull em(lo+men" or
economic gro%"h, <=suall+ "he goal o# mone"ar+ (olic+ is "o accommoda"e economic
gro%"h in an en'ironmen" o# s"able (rices,0 Mone"ar+ (olic+ can in'ol'e changing cer"ain
in"eres" ra"es& ei"her direc"l+ or indirec"l+ "hrough o(en marke" o(era"ions& se""ing reser'e
re/uiremen"s& ac"ing as a las".resor" lender <i,e, discoun" %indo% lending0& or "rading in
#oreign e-change marke"s,
History of monetary policy
Mone"ar+ (olic+ is associa"ed %i"h currenc+ and credi", 7or man+ cen"uries "here %ere
onl+ "%o #orms o# mone"ar+ (olic+4 decisions abou" coinage& and "he decision "o (rin"
(a(er mone+ "o crea"e credi", In"eres" ra"es& %hile no% "hough" o# as (ar" o# mone"ar+
au"hori"+& %ere no" generall+ coordina"ed %i"h "he o"her #orms o# mone"ar+ (olic+,
Mone"ar+ (olic+ %as seen as an e-ecu"i'e decision& and %as generall+ in "he hands o# "he
au"hori"+ %i"h seniorage& or "he (o%er "o coin, >i"h "he ad'en" o# larger "rading ne"%orks
came "he abili"+ "o se" "he (rice be"%een gold and sil'er& and "he (rice o# "he local
currenc+ "o #oreign currencies, This o##icial (rice could be en#orced b+ la%& e'en i# i"
'aried #rom "he marke" (rice,
>i"h "he crea"ion o# "he Bank o# ?ngland in 1694& %hich ac/uired "he res(onsibili"+ "o
(rin" no"es and back "hem %i"h gold& "he idea o# mone"ar+ (olic+ as inde(enden" o#
e-ecu"i'e ac"ion began "o be es"ablished, The goal o# mone"ar+ (olic+ %as "o main"ain "he
'alue o# "he coinage& (rin" no"es %hich %ould "rade a" (ar "o s(ecie& and (re'en" coins
#rom lea'ing circula"ion, The es"ablishmen" o# cen"ral banks b+ indus"riali*ing na"ions
%as associa"ed "hen %i"h "he desire "o main"ain "he na"ion2s (eg "o "he gold s"andard& and
"o "rade in a narro% band %i"h o"her gold back currencies, To accom(lish "his end& cen"ral
banks as (ar" o# "he gold s"andard began se""ing "he in"eres" ra"es "ha" "he+ charged& bo"h
"heir o%n borro%ers& and o"her banks %ho re/uired li/uidi"+, The main"enance o# a gold
s"andard re/uired almos" mon"hl+ ad3us"men"s o# in"eres" ra"es,
During "he 197@.192@ (eriod "he indus"riali*ed na"ions se" u( cen"ral banking s+s"ems&
%i"h one o# "he las" being "he 7ederal 5eser'e in 1916,B+ "his (oin" "he unders"anding o#
"he cen"ral bank as "he Alender o# las" resor"A %as unders"ood, I" %as also increasingl+
unders"ood "ha" in"eres" ra"es had an e##ec" on "he en"ire econom+& in no small (ar"
because o# "he marginal re'olu"ion in economics& %hich #ocused on ho% man+ more& or
ho% man+ #e%er& (eo(le %ould make a decision based on a change in "he economic
"rade.o##s, I" also became clear "ha" "here %as a business c+cle& and economic "heor+
began unders"anding "he rela"ionshi( o# in"eres" ra"es "o "ha" c+cle, <Be'er"heless& s"eering
a %hole econom+ b+ in#luencing "he in"eres" ra"e has o#"en been described as "r+ing "o
s"eer an oil "anker %i"h a canoe (addle,0
4
GAL A XY
The ad'ancemen" o# mone"ar+ (olic+ as an engineering disci(line has been /ui"e ra(id in
"he las" 18@ +ears& and i" has increased es(eciall+ ra(idl+ in "he las" 8@ +ears, Mone"ar+
(olic+ has gro%n #rom sim(l+ increasing "he mone"ar+ su((l+ enough "o kee( u( %i"h
bo"h (o(ula"ion gro%"h and economic ac"i'i"+, I" mus" no% "ake in"o accoun" such di'erse
#ac"ors as4
shor" "erm in"eres" ra"es1
long "erm in"eres" ra"es1
'eloci"+ o# mone+ "hrough "he econom+1
e-change ra"es1
credi" /uali"+1
bonds and e/ui"ies <cor(ora"e o%nershi( and deb"01
go'ernmen" 'ersus (ri'a"e sec"or s(endingCsa'ings1
in"erna"ional ca(i"al #lo%s o# mone+ on large scales1
#inancial deri'a"i'es such as o("ions& s%a(s& #u"ures con"rac"s& e"c,
Developing countries & Monetary Policy :
De'elo(ing coun"ries ma+ ha'e (roblems o(era"ing mone"ar+ (olic+ e##ec"i'el+, The
(rimar+ di##icul"+ is "ha" #e% de'elo(ing coun"ries ha'e dee( marke"s in go'ernmen"
deb", The ma""er is #ur"her com(lica"ed b+ "he di##icul"ies in #orecas"ing mone+ demand
and #iscal (ressure "o le'+ "he in#la"ion "a- b+ e-(anding "he mone"ar+ base ra(idl+, In
general& cen"ral banks in de'elo(ing coun"ries ha'e had a (oor record in managing
mone"ar+ (olic+,
Ty)es of *onetary )olicy
!onetary Policy: Target !arket
+ariable:
'ong Ter* "bjective:
In#la"ion Targe"ing In"eres" ra"e on
o'ernigh" deb"
A gi'en ra"e o# change in "he :$I
$rice De'el Targe"ing In"eres" ra"e on
o'ernigh" deb"
A s(eci#ic :$I number
Mone"ar+ Aggrega"es The gro%"h in mone+
su((l+
A gi'en ra"e o# change in "he :$I
7i-ed ?-change 5a"e The s(o" (rice o# "he
currenc+
The s(o" (rice o# "he currenc+
)old S"andard The s(o" (rice o# gold Do% in#la"ion as measured b+ "he
gold (rice
Mi-ed $olic+ =suall+ in"eres" ra"es =suall+ unem(lo+men" E :$I
change
8
GAL A XY
Monetary policy tools
!onetary base
Mone"ar+ (olic+ can be im(lemen"ed b+ changing "he si*e o# "he mone"ar+ base, This
direc"l+ changes "he "o"al amoun" o# mone+ circula"ing in "he econom+, A cen"ral bank
can use o(en marke" o(era"ions "o change "he mone"ar+ base, The cen"ral bank %ould
bu+Csell bonds in e-change #or hard currenc+, >hen "he cen"ral bank disbursesCcollec"s
"his hard currenc+ (a+men"& i" al"ers "he amoun" o# currenc+ in "he econom+& "hus al"ering
"he mone"ar+ base,
%eserve require*ents
The mone"ar+ au"hori"+ e-er"s regula"or+ con"rol o'er banks, Mone"ar+ (olic+ can be
im(lemen"ed b+ changing "he (ro(or"ion o# "o"al asse"s "ha" banks mus" hold in reser'e
%i"h "he cen"ral bank, Banks onl+ main"ain a small (or"ion o# "heir asse"s as cash
a'ailable #or immedia"e %i"hdra%al1 "he res" is in'es"ed in illi/uid asse"s like mor"gages
and loans, B+ changing "he (ro(or"ion o# "o"al asse"s "o be held as li/uid cash& "he 7ederal
5eser'e changes "he a'ailablil"+ o# loanable #unds, This ac"s as a change in "he mone+
su((l+,
,iscount -indo- lending
Man+ cen"ral banks or #inance minis"ries ha'e "he au"hori"+ "o lend #unds "o #inancial
ins"i"u"ions %i"hin "heir coun"r+, The lended #unds re(resen" an e-(ansion in "he mone"ar+
base, B+ calling in e-is"ing loans or e-"ending ne% loans& "he mone"ar+ au"hori"+ can
direc"l+ change "he si*e o# "he mone+ su((l+,
(nterest rates
The con"rac"ion o# "he mone"ar+ su((l+ can be achie'ed indirectly b+ increasing "he
nominal in"eres" ra"es,
Mone"ar+ au"hori"ies in di##eren" na"ions ha'e di##ering le'els o# con"rol o# econom+.
%ide in"eres" ra"es, Bangladesh Bank can se" "he discoun" ra"e& as %ell as achie'e "he
desired :en"ral 7unds 5a"e b+ o(en marke" o(era"ions, This ra"e has signi#ican" e##ec" on
o"her marke" in"eres" ra"es& bu" "here is no (er#ec" rela"ionshi(,
In o"her na"ions& "he mone"ar+ au"hori"+ ma+ be able "o manda"e s(eci#ic in"eres" ra"es on
loans& sa'ings accoun"s or o"her #inancial asse"s, B+ raising "he in"eres" ra"e<s0 under i"s
con"rol& a mone"ar+ au"hori"+ can con"rac" "he mone+ su((l+& because higher in"eres" ra"es
encourage sa'ings and discourage lending, Bo"h o# "hese e##ec"s reduce "he si*e o# "he
mone+ su((l+,
6
GAL A XY
Currency board
A currency board is a mone"ar+ au"hori"+ %hich is re/uired "o main"ain an e-change ra"e
%i"h a #oreign currenc+, This (olic+ ob3ec"i'e re/uires "he con'en"ional ob3ec"i'es o# a
cen"ral bank "o be subordina"ed "o "he e-change ra"e "arge",
The 'ir"ue o# "his s+s"em is "ha" /ues"ions o# currenc+ s"abili"+ no longer a((l+, The
dra%backs are "ha" "he coun"r+ no longer has "he abili"+ "o se" mone"ar+ (olic+ according
"o o"her domes"ic considera"ions& and "ha" "he #i-ed e-change ra"e %ill& "o a large e-"en"&
also #i- a coun"r+2s "erms o# "rade& irres(ec"i'e o# economic di##erences be"%een i" and i"s
"rading (ar"ners,
Monetary policy of Bangladesh & Credit control policy
Bo"h in de'elo(ed and de'elo(ing economies& mone"ar+ (olic+ seeks "o main"ain (rice
s"abili"+ accom(anied b+ sus"ained s"able ou"(u" gro%"h in "he #ace o# in"ernal and
e-"ernal shocks "ha" are #aced #rom "ime "o "ime, 7or de'elo(ing economies like
Bangladesh %i"h signi#ican" underem(lo+men"Cunder e-(loi"a"ion o# (roduc"ion #ac"ors&
s"imula"ing higher gro%"h is im(era"i'e #or ra(id reduc"ion and e'en"ual elimina"ion o#
endemic (o'er"+& and is "here#ore an o'erriding (riori"+, The s"imulus (ro'ided b+
mone"ar+ (olic+ in accommoda"ing "he gro%"h as(ira"ions mus" no" ho%e'er 3eo(ardi*e
macroeconomic s"abili"+ and #u"ure gro%"h1 and "he (ursui" o# mone"ar+ (olic+ com(rises
o# 'arious su((or"i'e measures "o a""ain "he highes" sus"ainable ou"(u" gro%"h %hile
ad3us"ing smoo"hl+ "o in"ernal and e-"ernal shocks "ha" "he econom+ encoun"ers #rom
"ime "o "ime,
Ob3ec"i'es o# "he mone"ar+ (olic+ o# "he Bangladesh Bank as ou"lined in "he Bangladesh
Bank Order& 1972 com(rise o# a""aining and main"aining o# (rice s"abili"+& high le'els o#
(roduc"ion& em(lo+men" and economic gro%"h,
In "he decades o# se'en"ies and eigh"ies& mone"ar+ (olic+ in Bangladesh %as conduc"ed
%i"h #ull direc" con"rol on in"eres" ra"es and e-change ra"es& as also on "he 'olumes and
direc"ions o# credi" #lo%s,
The si"ua"ion began changing in "he nine"ies %i"h "he aboli"ion o# direc"ed lending and
gradual liberali*a"ion o# in"eres" ra"es1 "he change (rocess culmina"ing in "ransi"ion "o
marke" based e-change ra"e o# Taka #rom 61s" Ma+ 2@@6, 7rom "hen on& in"eres" ra"e and
e-change ra"e are bo"h marke" dri'en& e-change ra"e is no longer in "he role o# nominal
anchor #or (rices,
7
GAL A XY
Mone"ar+ (olic+ in Bangladesh is #ormula"ed around in#la"ion and ou"(u" gro%"h ra"es as
"he basic (olic+ "arge"s, De'els and gro%"h (a"hs o# rele'an" mone"ar+ aggrega"es such as
reser'e mone+& broad mone+ and domes"ic credi" are also (ro3ec"ed and moni"ored as
in"ermedia"e "arge"s in conduc"ing mone"ar+ (olic+,
:$I in#la"ion& e-(ressed as "he ra"e o# change o# :onsumer $rice Inde-& is used in
Bangladesh #or measuring (rice s"abili"+ in conduc"ing mone"ar+ (olic+, Some cen"ral
banks o(" #or sui"abl+ de#ined 2core in#la"ion2 e-cluding #rom consum("ion baske" i"ems
%i"h "+(icall+ high seasonal (rice 'ola"ili"+& 'ie%ed as be""er re(resen"ing "he ac"ual
underl+ing in#la"ion "rend,
The "arge" le'el o# :$I in#la"ion is chosen "aking in"o accoun" "he coun"r+2s (as" long run
in#la"ion (er#ormance& and "he domes"ic and e-"ernal #ac"ors dri'ing "he curren" "rend o#
domes"ic in#la"ion, 7rom "he earl+ nine"ies& annual a'erage :$I in#la"ion has consis"en"l+
been a" single digi" le'els& reaching a lo% o# 1,94 (ercen" in 7FO1 and edging u(%ards
"herea#"er& in line %i"h "he bo""oming ou" and subse/uen" u(s%ing o# global in#la"ion,
O"her "han "he adminis"ered energ+ (rices& consumer (rices in Bangladesh are marke"
dri'en& and as men"ioned earlier& "rends o# domes"ic (rices o# "radable in "he o(en
econom+ are increasingl+ mirroring global (rice "rends& "he di'ergence be"%een domes"ic
and global in#la"ion arising largel+ #rom "he (rice "rends o# "he non"a-able
9
GAL A XY
T(GHTE# THE .(T/$T("#
(nstru*ents e*)loyed0
(nterest rate: In "igh"ening "he mone"ar+ (olic+ s"ance& ke+ (olic+ ra"es <"reasur+ bill
bond auc"ion +ields& ra"io and re'erse ra"io& in"eres" ra"es o# Bangladesh Bank0 ha'e been
raised and main"ained on u("rend& #or "hese in "urn "o raise "he ra"es o# o"her #inancial
cos"s and re"urns& res"raining demand gro%"h in "he real sec"or,
%evision of the statutory ratios for scheduled banks: The marke"s are +e" "o gain
su##icien" de("h "o res(ond %i"h "he changes in (olic+ in"eres" ra"es, To com(ensa"e #or
"his inade/ua"e in"eres" ra"e res(onsi'eness o# marke"s& (olic+ in"eres" ra"e in"er'en"ions
in Bangladesh are a" "imes su((lemen"ed b+ changes in "he :ash 5eser'e 5e/uiremen"
<:550 and S"a"u"or+ Di/uidi"+ 5a"io <SD50 #or scheduled banks& "hus in#luencing "he
'olumes as %ell as cos"s o# #unds a'ailable #or credi" gro%"h,
In Oc"ober 2@@8& "he :55 and SD5 %ere re'ised u(%ard #rom 4,8 (ercen" and 16,@
(ercen" res(ec"i'el+ "o 8,@ (ercen" and 19,@ (ercen" o# "ime and demand liabili"ies o#
scheduled banks& %i"h a 'ie% "o slo%ing do%n o'erall domes"ic credi" gro%"h as %ell as
"he gro%"h o# credi" "o "he (ri'a"e sec"or,
Annual mone"ar+ (rograms based on "he in#la"ion and )D$ gro%"h "arge"s o# mone"ar+
(olic+ (ro'ide a con'enien" #rame%ork #or in"er'en"ions in mone"ar+ de'elo(men"s& and
#or moni"oring "he ou"come o# "he mone"ar+ (olic+ s"ance (ursued,
Based on "he assum("ion "ha" in#la"ion rises and #alls %i"h increase and decrease in "he
ra"e o# gro%"h o# mone+ s"ock& "he annual mone"ar+ (rogramme "arge"s a gro%"h (a"h #or
broad mone+ consis"en" %i"h "he in#la"ion and real )D$ gro%"h "arge"s o# mone"ar+
(olic+& allo%ing #or "he likel+ change in income 'eloci"+ o# mone+,
The mone"ar+ (rogram is ne'er"heless 'er+ use#ul as #rame%ork #or gauging "he gro%"h
su((or"i'eness and "he in#la"ion s"abili*a"ion e##ec"i'eness o# "he mone"ar+ (olic+ s"ance
(ursued, The broad mone+ gro%"h "arge" o# "he mone"ar+ (rogramme has #ur"her been
disaggrega"ed in"o sub "arge"s on "he asse" and liabili"+ side,
Our (resen" challenge is "o s"abili*e in#la"ion ra"e, One ca'ea" "he (ro.(oor gro%"h
momen"um is #acing.is "he rise in in#la"ion ra"e.no" onl+ caused b+ "he a#"erma"h o# "he
#lood las" +ear and ra(id credi" e-(ansion bu" also due "o rise in #uel and commodi"+
(rices around "he globe1 %hich is be+ond our con"rol, In#la"ion ra"e "ha" s"ood a" 7,68
(ercen" in Gune @8 rose "o 7,98 (ercen" in Bo'ember @8, >i"h a brie# do%n s%ing during
earl+ mon"hs o# 2@@6& i" again s"ar"ed mo'ing u( "o 6,17 (ercen" in March @6, >e ho(e
"he mone"ar+ s"ance and (ros(ec"i'e gro%"h along %i"h o("imis"ic global economic
scenario %ould bring do%n "he (rice le'el %i"hin a shor" (eriod,
9
GAL A XY
The "igh"ened mone"ar+ s"ance no% being (ursued is in"ended no" "o slo%do%n ou"(u"
gro%"h bu" "o curb e-cess demand arising #rom in#la"ionar+ e-(ec"a"ions& "hereb+
su((or"ing sus"ained s"able ou"(u" gro%"h o'er "he near and medium "erm, The #our"een
(ercen" gro%"h o# credi" "o "he (ri'a"e sec"or (rogrammed #or 7F@6 %ould be su##icien"
"o su((or" se'en (ercen" real )D$ gro%"h i# :$I in#la"ion is se'en (ercen"& e'en higher
real )D$ gro%"h %ill be su((or"ed %i"h lo%er in#la"ion, The mone"ar+ s"ance is sub3ec"
"o con"inuous re'ie% in "he ligh" o# e'ol'ing si"ua"ion& ma+ shi#" "o a neu"ral s"ance& and
ma+ e'en mo'e #ur"her "o an accommoda"i'e s"ance as 'alues o# ke+ macroeconomic
'ariables change o'er "ime,
1@
GAL A XY
Mone"ar+ sur'e+
(Taka in million)
November, 2005Percentage Changes of November, 2006 over :om(onen"s
November,
2006October, 2006
October, 2006
1.94 48.32
(a) BANGLADESH BANK 197507 190957 131487 3.43 50.21
() DE!"S#T $"NE%
BANKS
28897 3114& 2115& '7.22 3&.59
2. NET D"$EST#( ASSETS1702952 1&971&0 1450087 0.34 17.44
A. D"$EST#( ()ED#T
(a*)
1903425 1889597 1&01141 0.73 18.88
(a) BANGLADESH BANK 2&&821 277311 1907&& '3.78 39.87
(laim+ on !,li-
S.-/o0
2&5923 27&458 190098 '3.81 39.89
(laim+ on Go1/.(n./) 25&587 2&7122 180309 '3.94 42.3
(laim+ on "/2.0 !,li- 933& 933& 9789 0 '4.&3
(laim+ on !0i1a/.
S.-/o0
898 853 &&8 5.28 34.43
() DE!"S#T $"NE%
BANKS
1&3&&04 1&1228& 1410375 1.51 1&.04
(laim+ on !,li-
S.-/o0
2507&8 243157 244081 3.13 2.74
(laim+ on Go1/.(n./) 105708 97190 110210 8.7& '4.08
(laim+ on "/2.0 !,li- 1450&0 1459&7 133871 '0.&2 8.3&
(laim+ on !0i1a/.
S.-/o0
138583& 13&9129 11&&294 1.22 18.82
B. NET "THE) ASSETS '200473 '192437 '151054 4.18 32.72
(a) BANGLADESH BANK '207&58 '197730 '119049 5.02 74.43
() DE!"S#T $"NE%
BANKS
7185 5293 '32005 35.75 122.45
3. B)"AD $"NE%(1*2) 192935& 19192&3 1&02730 0.53 20.38
Source : Statistics Department, Bangladesh Bank
11
GAL A XY
Monetary policy and investment
O##iciall+& "he ra"e o# in#la"ion in Bangladesh is abou" 9 (er cen", The ra"e is considered as
a conser'a"i'e one b+ non.o##icial sources %ho main"ain "ha" "he in#la"ion ra"e is in "he
double digi"s, In#la"ion con"rol& "here#ore& is im(or"an" #or "he econom+& and #rom "ha"
(ers(ec"i'e& Bangladesh Bank2s "igh" mone"ar+ (olicies or e##or"s "o con"ain in#la"ion b+
decreasing "he #lo% o# mone+ ma+ be seen as a rou"ine a((roach "o regula"ing
in#la"ionar+ (ressure,
Bu" "he Bangladesh Bank <BB0 needs "o "ake o"her issues in"o considera"ion %hile
a((l+ing "radi"ional mone+ con"rols "hrough i"s (olicies, Bo econom+ can gro% %i"hou"
in'es"men" and al"hough "he cumula"i'e in'es"men" #igures #or "he curren" +ear are no"
a'ailable& "he same are an"ici(a"ed "o be a" a record high le'el, This in'es"men" le'el
needs "o be main"ained or #ur"her im(ro'ed #or "he econom+ "o #are be""er.. "han i" has so
#ar.. in "he Be% Fear, The econom+ needs "o gro% a" an accelera"ed (ace #rom i"s a'erage
8 (er cen" gro%"h "o higher gro%"h like 7 "o 9 (er cen" annuall+ "o be able "o more "han
co(e %i"h massi'e unem(lo+men" and "he (roblem o# (o'er"+,
The (rere/uisi"e o# higher in'es"men" is "he a'ailabili"+ o# #inance, In'es"ors do no"
in'es" en"irel+ "heir o%n resources on en"er(rises, The+ borro% #rom banks and o"her
#inancial ins"i"u"ions, $ro'ided "he in"eres" ra"es on loans #rom "hese ins"i"u"ions are seen
as #a'orable& in'es"or %ill borro% more and more and in'es" "he same& "oge"her %i"h "heir
o%n ca(i"al& in ne% en"er(rises or in e-(anding (roduc"i'e ac"i'i"ies in "he e-is"ing ones,
The lending ra"es #rom #inancial ins"i"u"ions are be"%een 9 and 18 (er cen", According "o
re(or"s& "he lending ra"e has increased b+ one (ercen"age (oin" more alread+ #rom "he
mone"ar+ (olicies im(lemen"ed b+ BB and i" could climb e'en higher in "he (ursui" o#
such (olicies, Thus& "he /ues"ion "ha" canno" hel( bu" arise is %ha" "he im(ac" o# "igh"er
mone"ar+ (olicies %ill be on in'es"men" or economic gro%"hH In'es"ors in an+ si"ua"ion
are ins(ired b+ lo% lending ra"es and no" b+ (rogressi'el+ higher ones, Iigher lending
ra"es ac"uall+ discourage in'es"men" %hich "hen im(ac"s nega"i'el+ on economic gro%"h,
There has been an ou"cr+ in "he coun"r+ "o lo%er "he in"eres" ra"e on lending "o (romo"e
grea"er in'es"men" ac"i'i"ies, I" a((eared "ha" "he meri" o# "his reasoning %as recogni*ed
b+ "he BB and in"eres" ra"es on loans %ere reduced no"abl+ #or a %hile, The higher
in'es"men"s in "he econom+ during "he las" "%o +ears had a rela"ionshi( "o "he lo%ered
lending ra"es, Bu" a re'ersal o# "his (olic+ and allo%ing "he in"eres" ra"es on leading "o
rise again could (ro'e "o be a dam(er on in'es"men" ac"i'i"ies,
Besides& "he BB also needs "o "ake in"o accoun" "he non economic #ac"ors behind (rice
12
GAL A XY
rises "ha" ha'e hardl+ an+ links %i"h in#la"ion, According "o "e-"book "heories& (rice rise
o# goods and ser'ices is "he inalienable com(anion o# a gro%ing in#la"ionar+ si"ua"ion,
Bu" (rice rises in "he (resen" con"e-" o# Bangladesh a((ear "o be more #or non economic
reasons like ou"come o# crimes such as hoarding& (ro#i"eering& and s+ndica"e #orma"ion "o
mani(ula"e (rices u(%ards& among o"hers,
Thus& BB ough" no" "o #rus"ra"e "he "rend "o%ards higher in'es"men" b+ e-ercising "igh"er
mone"ar+ (olicies, I" needs "o (ruden"l+ a((l+ con"rols in mone+ su((l+ so "ha" in'es"ors
are no" dishear"ened
!onetary Policy and (sla*ic Banking in Bangladesh
%EG/'$T("# " (.'$!(C B$#1(#G (# B$#G'$,E.H:
%"'E " B$#G'$,E.H B$#1
The banking s+s"em o# Bangladesh is com(osed o# a 'arie"+ o# banks %orking as
Ba"ionali*ed :ommercial Banks <B:Bs0& $ri'a"e Banks& 7oreign Banks& S(eciali*ed
Banks and De'elo(men" Banks, Io%e'er& 29 ou" o# 8@ banks in Bangladesh are (ri'a"e&
o# %hich onl+ 8& namel+ Islami Bank Bangladesh Dimi"ed& Al.Baraka Bank Bangladesh
Dimi"ed& Al.Ara#ah Islami Bank Dimi"ed& Social In'es"men" Bank Dimi"ed& and 7a+sal
Islamic Bank o# Bahrain ?,:, ha'e been o(era"ing as Islamic banks, Besides "hese #ull.
#ledged Islamic banks& "%o con'en"ional banks in "he (ri'a"e sec"or namel+ "he $rime
Bank Dimi"ed and Dhaka Bank Dimi"ed& ha'e o(ened "%o #ull.#ledged Islamic banking
branches and Islamic Banking :oun"er res(ec"i'el+ "o deal %i"h "he Islamic banking
business (arallel "o "heir con'en"ional o(era"ions, The o(era"ions and accoun"s o# "hese
branches and coun"er are main"ained se(ara"el+ #rom "he mains"ream business o# "he
res(ec"i'e banks,
The Genesis of Islamic Banking in Bangladesh
Bangladesh inheri"ed an in"eres" based banking s+s"em righ" #rom "he Bri"ish :ouncil
(eriod and em(lo+men" o# "he Muslim as in banks %as more or less res"ric"ed, During "he
(eriod 1947.1971 %hen coun"r+ %as a (ar" o# $akis"an& banking o# course came under
Muslim con"rol bu" "he s+s"em did no" changed <M,A,Ia/ue& 19940,Though $akis"an %as
crea"ed in "he name o# Islam& "he rulers did no" "ake an+ (rac"ical a""em(" "o es"ablish
economic s+s"em based on Islamic $rinci(les,
Since inde(endence& Bangladesh sa% a ne% "rend in banking bo"h a" home and abroad
during "he se'en"ies& Islamic De'elo(men" Bank <IDB0 a" "he in"erna"ional le'el and a
number o# Islamic banks a" na"ional le'els %ere es"ablished in "he Muslim %orld, A"
home& some en"re(reneurs %ere ac"i'el+ %orking #or in"roduc"ion o# Islamic banking,
16
GAL A XY
T%o (ro#essional bodies JIslamic ?conomics 5esearch BureauK <I?5B0 and JBangladesh
Islamic Bankers Associa"ionK <BIBA0 %ere "aking (rac"ical s"e(s #or im(ar"ing "raining
on Islamic ?conomics and banking "o a grou( o# bankers and arrange some na"ional and
in"erna"ional seminarsC%orksho(s "o mobili*e local and #oreign (eo(le in'es"ors, Their
(ro#essional and righ"."hough" ac"i'i"ies %ere s"reamlined b+ a number o# en"husias"ic
businessmen in Bangladesh, The+ concen"ra"ed mainl+ in mobili*ing e/ui"+ ca(i"al #or
"he (ros(ec"i'e Islamic bank, Due "o con"inuous and dedica"ed %ork o# "he abo'e grou(s
and indi'iduals and ac"i'e su((or" #rom "he )o'ernmen"& Islamic banking could be
es"ablished in earl+ eigh"ies, Islamic banks ha'e been o(era"ing in Bangladesh #or abou"
one and hal# decade alongside %i"h "he "radi"ional banks, Ou" o# o'er 8@ banks onl+ #i'e
banks <including one #oreign Islamic bank0 and "%o Islamic banking branches o# a
"radi"ional bank& $rime Bank Dimi"ed <$BD0 ha'e been %orking on Islamic (rinci(les,
Dike an+ o"her "radi"ional commercial banks& "he+ do mobili*e de(osi"s and (ro'ide
loans, Bu" "heir modes o# o(era"ion& based on Shariah& are di##eren" #rom "he o"her
"radi"ional commercial banks, Io%e'er& "he #i'e Islamic banks o(era"ing in Bangladesh
are4
1, Islami Bank Bangladesh Dimi"ed <IBBD01
2, Al Baraka Bank Bangladesh Dimi"ed <AD.Baraka01
6, Al.Ara#ah Islami Bank Dimi"ed <Al.Ara#ah01
4, Social In'es"men" Bank Dimi"ed <SIBD01 and
8, 7a+sal Islamic Bank o# Bahrain ?: <7IBB0,
Besides "he abo'e #i'e Islamic banks& $rime Bank Dimi"ed has o(ened "%o Islamic
Banking branches on 19 December& 1998 and 17"h December& 1997 res(ec"i'el+ %hile
Dhaka Bank Dimi"ed has s"ar"ed o(era"ion %i"h an Islamic :oun"er a" i"s $rinci(al O##ice
in con3unc"ion %i"h con'en"ional banking o(era"ions since ince("ion o# "he bank in Gul+&
1998,
Monetary Policy and Islamic Banking in Bangladesh
The cen"ral bank has "he sole au"hori"+ "o issue currenc+ and manage "he li/uidi"+ o# "he
econom+, Among o"hers& "he ob3ec"i'es o# "he mone"ar+ (olic+ are "o ensure s"abili"+ o#
"he 'alue o# Taka and regula"e "he banking s+s"em (ruden"l+, As a cen"ral bank&
Bangladesh Bank %as no" aloo# #rom "he ongoing changes in "he %orld #inancial s+s"em,
Bangladesh Bank had issued license in 1996 #or es"ablishmen" o# "he #irs" Islamic bank in
Bangladesh, The Bangladesh )o'ernmen" had (ar"ici(a"ed in es"ablishing "he Bank& b+
subscribing #i'e (ercen" share in "he (aid u( ca(i"al, :onsidering lack o# Islamic #inancial
marke"s and ins"rumen"s or (roduc"s in "he coun"r+& Bangladesh Bank had gran"ed some
(re#eren"ial (ro'isions #or smoo"h de'elo(men" o# Islamic banking in Bangladesh,
Among "he (re#eren"ial (ro'isions& "he #ollo%ing are im(or"an",
1, Islamic banks in Bangladesh ha'e been allo%ed "o main"ain "heir S"a"u"or+ Di/uidi"+
5e/uiremen" <SD50 a" 1@L o# "he "o"al de(osi" liabili"ies %hile i" is 2@L #or "he
con'en"ional banks, This (ro'ision had #acili"a"ed "he Islamic banks "o hold more li/uid
#unds #or more in'es"men" and "hereb+ genera"e more (ro#i",
2, =nder indirec" mone"ar+ (olic+ regime& Islamic banks %ere allo%ed "o #i- u( "heir
14
GAL A XY
(ro#i".sharing ra"ios and mark.u(s inde(enden"l+ commensura"e %i"h "heir o%n (olic+
and banking en'ironmen", This #reedom in #i-ing $DS ra"ios and Mark.u( ra"es had
(ro'ided sco(e #or "he Islamic banks "o #ollo% "he Shariah (rinci(les inde(enden"l+ #or
reali*ing goals o# Islamic Shariah,
Source4 International Journal of Islamic Financial Services Vol. 2 No.1
IMF suggests tighter monetary policy
In"erna"ional Mone"ar+ 7und <IM70 has sugges"ed #ur"her "igh"ening o# Bangladesh
Bank2s mone"ar+ (olic+ "o ease in#la"ionar+ (ressure,
AThis is "he ke+ challenge #or "he au"hori"ies in Bangladesh&A Thomas 5umbaugh& IM7
ad'iser #or "he Asia and $aci#ic& "old a (ress brie#ing a" "he IM7 5esiden" Mission in
Dhaka +es"erda+,
The IM7 o##icial said "his re(l+ing "o a /ues"ion %he"her "heir (rescri("ion "o con"ain
in#la"ion %ould be (ossible i# "he go'ernmen" raises "he #uel (rices #ur"her and "he
im(or" cos" increases due "o "he soaring dollar (rices,
Ie insis"ed on increasing "he in"eres" ra"es #ur"her as a means o# "igh" mone"ar+ (olic+,
ASome #ur"her increases in in"eres" ra"es ma+ be re/uired "o bring in#la"ion in line %i"h
o"her coun"ries&A he said,
The brie#ing %as organi*ed a" "he end o# an 9.da+ mission o# an IM7 "eam led b+
Thomas "ha" re'ie%ed "he recen" economic de'elo(men"s and "he im(lemen"a"ion o#
(olicies su((or"ed b+ "he $o'er"+ 5educ"ion and )ro%"h 7acili"+ <$5)70
arrangemen",
AI"2s ine'i"able "ha" "he go'ernmen" %ill ha'e "o ad3us" "he oil (rices&A Thomas said&
adding "ha" "he (rice hike %ill ha'e one"ime im(ac" on "he in#la"ion& no" a (ermanen"
one,
ATha"2s %h+ Bangladesh Bank needs "o kee( 'er+ (ruden" mone"ar+ (olic+ so "ha" "he
in#la"ion does no" go u(&A he said,
During "heir 'isi" "o Bangladesh& "he mission members me" 7inance and $lanning
Minis"er M Sai#ur 5ahman& 7inance Secre"ar+ Siddi/ur 5ahman :ho%dhur+&
Bangladesh Bank )o'ernor Dr Salehuddin Ahmed and senior go'ernmen" o##icials,
A)ro%"h momen"um in Bangladesh2s econom+ has been main"ained during "his #iscal
+ear&AThomas "old "he brie#ing on "heir obser'a"ions,
Ie e-(ec"ed "ha" "he )D$ gro%"h %ould be abou" 6 (ercen" bu" obser'ed "ha"
in#la"ion& "hough declined sligh"l+& a" 6,8 (ercen" %as s"ill higher "han desirable,
Thomas added "ha" "he e-"ernal curren" accoun" %as be""er "han e-(ec"ed in "he #irs"
18
GAL A XY
hal# o# 7F@6 %i"h s"rong gro%"h in e-(or"s and some slo%ing in non.oil im(or"s,
ADes(i"e "hese (osi"i'e de'elo(men"s& considerable macroeconomic challenges remain
"here&A he said& sugges"ing "ha" Bangladesh Bank should con"inue "he "igh"ened (olic+
during "he da+s "o come,
A(ar" #rom #ur"her raising "he in"eres" ra"es and "he (rices o# #uel oil& "he IM7 also
sugges"ed increasing re'enue collec"ion as a ma""er o# (riori"+ as "he go'ernmen" is
(re(aring "he budge" o# 7F@7,
On (e"roleum (rices& i" obser'ed "ha" "he (resen" (olic+ en"ails considerable and
gro%ing economic cos"s& mainl+ bene#i"ing higher income consumers& reducing
economic e##icienc+& and onl+ dela+ing "he ine'i"able ad3us"men"s as losses con"inue
"o moun" on "he B$: and "he B:Bs #inancial (osi"ion de"eriora"es,
5e(l+ing "o a /ues"ion& Thomas said "here are some li/uidi"+ (roblems in "he #oreign
e-change marke" %hile "he marke" needs some im(ro'emen"s in "erms o# e##icienc+,
In res(onse "o ano"her /uer+& he said i" %ould be (ossible "o regis"er #as"er )D$
gro%"h e'en i# "here are some di##icul"ies in agricul"ure as "he indus"r+ and ser'ices
sec"ors are sho%ing robus" gro%"h,
The 6.+ear $5)7 arrangemen" %as a((ro'ed in Gune 2@@6 %i"h a "o"al lending
commi"men" o# M496 million& being disbursed in se'en ins"allmen"s& %hich %ere la"er
augmen"ed b+ abou" M78 million under IM72s Trade In"egra"ion Mechanism <TIM0,
7i'e ins"allmen"s %or"h M4@9 million ha'e so #ar been released %i"h "he la"es" one
<M97 million0 in 7ebruar+, Discussions on "he release o# "he si-"h ins"allmen" %ill "ake
(lace in Ma+ "his +ear i# "he go'ernmen" con"inues "o im(lemen" (olicies& (ar"icularl+
on "he B:Bs and "he BB5,
16
GAL A XY
Conclusion
Through abo'e discussion& %e "ried "o e-(lain some im(or"an" issues in mone"ar+ (olic+
and i"s im(lica"ion in o'erall economic si"ua"ion o# Bangladesh,
Bangladesh Bank s"ill %ork heard "o ge" "he o'erall economic "rend o# "he coun"r+ s"able
b+ checking "he mone"ar+ (olic+ and im(lemen"ing some o"her rele'an" (olic+ %hich %ill
(ro'e "o be e##ec"i'e in "he long run as %ell as i" %ill hel( "o crea"e congenial economic
en'ironmen" in "he econom+,
17
GAL A XY
%eference
1. Banks and legal ?n'ironmen", Dr.R.M.Debnath
2. :ommercial Bank Managemen", Peter Rose
3. The Dail+ S"ar <7ri, March 1@& 2@@60
. Bangladesh bank >eb Si"e,
19
GAL A XY
E2ecutive .u**ary
Bangladesh Bank came in"o e-is"ence %i"h re"ros(ec"i'e e##ec" #rom 16"h December&
1971, The general su(erin"endence and direc"ion o# a##airs and business o# "he Bank are
en"rus"ed "o a nine member Board o# Direc"ors %hich consis"s o# "he )o'ernor as
chairman& a De(u"+ )o'ernor& "hree senior go'ernmen" o##icials and #our (ersons ha'ing
e-(erience and (ro'en ca(aci"+ in "he #ields o# banking& "rade& commerce& indus"r+ or
agricul"ure . all nomina"ed b+ "he go'ernmen", The board& %hich is "he highes" (olic+
making bod+& mee"s a" leas" si- "imes a +ear and a" leas" once e'er+ /uar"er under "he
chairmanshi( o# "he )o'ernor, The broad ob3ec"i'es o# "he Bank are "o manage "he mone"ar+
and credi" s+s"em o# Bangladesh %i"h a 'ie% "o s"abili*ing domes"ic mone"ar+ 'alue,
7unc"ions 5e'ie% and dra#"ing o# banking s"a"u"es& De"ermina"ion o# ca(i"al ade/uac+
re/uiremen"s& asse" classi#ica"ion and (ro'isioning s"andards, To (reser'e "he (ar 'alue o#
"he Bangladesh Taka1 #ormula"e (olicies %i"h a 'ie% "o res"raining insider lending,
Mone"ar+ (olic+ is "he (rocess b+ %hich "he go'ernmen"& cen"ral bank& or mone"ar+
au"hori"+ manages "he mone+ su((l+ "o achie'e s(eci#ic goals, Mone"ar+ (olic+ can
in'ol'e changing cer"ain in"eres" ra"es& ei"her direc"l+ or indirec"l+ "hrough o(en marke"
o(era"ions& se""ing reser'e re/uiremen"s& ac"ing as a las".resor" lender <i,e, discoun"
%indo% lending0& or "rading in #oreign e-change marke"s, Mone"ar+ (olic+ is associa"ed
%i"h currenc+ and credi", 7or man+ cen"uries "here %ere onl+ "%o #orms o# mone"ar+
(olic+4 decisions abou" coinage& and "he decision "o (rin" (a(er mone+ "o crea"e credi",
The "ools o# "he moni"or+ (olic+ are mone"ar+ base& reser'er re/uiremen"s& in"eren%es"
ra"e& currenc+ board& e"c, Mone"ar+ (olic+ in Bangladesh is #ormula"ed around in#la"ion
and ou"(u" gro%"h ra"es as "he basic (olic+ "arge"s,
19
GAL A XY
'etter of Trans*ittal
Da"e4 7
"h
March& 2@@7
To
Md, Iarunur 5ashid
Dec"urer
De(ar"men" o# Business Adminis"ra"ion
Dhaka :i"+ :ollege
Sub4 .ub*ission of %e)ort on !onetary Policy 3 (ts (*)lication of Bangladesh
Bank0
Dear Sir&
I" is a grea" (leasure "o submi" our re(or" J Mone"ar+ $olic+ N I"s Im(lica"ion o#
Bangladesh BankK, >e ha'e gi'en our bes" e##or" "o #urnish "he re(or" %i"h rele'an"
in#orma"ion "ha" %e ha'e collec"ed #rom man+ source,
>e ha'e concen"ra"ed our bes" e##or"s "o achie'e "he ob3ec"i'es o# "he %ork and ho(e "ha"
our endea'or %ill ser'e "he (ur(ose, >e shall be highl+ gra"e#ul and obliged i# +ou kindl+
acce(" our re(or" and e'alua"e i" %i"h +our sagacious 3udgmen",
Thank +ou
Sincerel+
G!"#
BBA 8
"h
Ba"ch
Sec. A
De(", o# Business Adminis"ra"ion
Dhaka :i"+ :ollege
2@
GAL A XY
21
GAL A XY
22