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Role of Interest Groups in Monetary Policy
Dr. Ferdous Arfina Osman Associate Professor Dept. of Public Administration University of Dhaka
Md Noor-A-Alam Zahid
Roll No: ZR-88
3rd Batch 8th Semester Dept. of Public Administration University of Dhaka
Date of Submission: 19-12-20012
stable and predictable. symposium. It s the process by which the monetary authority of a country controls the supply of money. cost and use of money and credit with the help of monetary measures in order to achieve the specific goals. deputy governor. The central bank make the monetary policy for the betterment of the economy of the country. It is a set of rules that aims at regulating the supply of money in accordance with predetermined goals or objectives. It is the policy accepted by the central bank for control of the supply of money as an instrument for achieving the objectives of general economic policy. By keeping inflation low. The department of research in the Bangladesh Bank plays an important role in the formulation of economic policies of the country. The internal and external interest group accelerate the money policy by performing their job in their own sectors and creating pressure to the central bank authority through discussion in mass media. and also the bank’s board of directors. It works through expansion and contradiction of investment and consumption expenditure. Monetary Policy Monetary policy refers the central bank’s policy to control of the availability. seminar. often targeting a rate of interest for the purpose of promoting economic growth and stability. . Domestic and international economic developments are brought within the encompass of comprehensive reports and reviews perusal of the governor. Monetary policy is concerned with how much money circulates in the economy and what that money is worth.Introduction Monetary policy is the management of monetary supply and interest rates by central bank to influence prices and employees.
The framework is based on credible information on the stability of the money demand function. Monetary policy in Bangladesh is framed using projected real GDP growth rate. monetary policy refers the central bank’s policy to control of the availability. The targeted rate of inflation adopts Reserve Money (RM) and Broad money (M2) as operating and intermediate targets respectively. the monetary policy aims at supporting highest sustainable output growth along with reasonable price stability and smooth adjustment to internal and external shocks faced by the economy. by controlling the growth of monetary aggregates. cost and use of money and credit with the help of monetary measures in order to achieve the specific goals. The underlying assumption is that growth of monetary aggregates (such as RM and M2) has a predictable relationship with the domestic price level. The process uses repo. Within the framework. In practice. Therefore. Monetary Policy of Bangladesh The monetary policy framework of Bangladesh Bank identifies a logical and sequential set of actions for designing and conducting the monetary policy. Under these circumstances. with the idea that the RM growth will in turn lead. and Bangladesh Bank bill rates as policy instruments for influencing financial and real sector prices toward the targeted path of inflation. Bangladesh Bank aims at achieving price stability. to a given growth . through money multiplier.the Bank contributes to solid economic performance and rising living standards for the people of that country. reverse repo. Bangladesh Bank sets a growth rate of RM that is deemed to be consistent with targeted inflation and output growth. and the monetary transmission mechanism. the money supply process.
which comprises— To achieve the price stability To regulate currency and reserves To promote and maintain a high level of production. objective of the Monetary Policy of Bangladesh is to outline the formulation and of implementation of monetary policy of the Bangladesh Bank (BB). The Bangladesh Bank Order of 1972 outlines the main objectives of monetary policy in Bangladesh. and economic growth. employment and real income. since independence BB operated under a variety of pegged exchange rate systems amid capital controls To manage the monetary and credit system To maintain the par value of domestic currency To promote growth and development of the country's productive resources in the best national interest Although the long term focus of monetary policy in Bangladesh is on growth with stability. and to convey its assessment of the recent and the expected monetary and inflation developments to the stakeholders and the public at large. the short-term objectives are determined after a careful and realistic appraisal of the current economic situathe country .rate of M2 in the economy.
business and agriculture community. Depending upon whether they are democratic or dictatorial. firms. asset allocation other indicators of economic behaviors. Besides these the interest groups such as the labor.the production capacity agriculture the number of total population . the numbers of unemployed people are very important to determine the economic growth and measures against the current policy. the information of per capita income .Interest Group Interest group represent organized labor. the numbers of householders. In the context of Monetary policy . All these information are collected from the interest groups . reducing the impediments to market efficiency originating from asymmetric and incomplete information and promoting the effectiveness of monetary policy. and the central bank concerning each other’s actions in the context of price and wage formation. modern or developing countries may differ with respect the how groups are constituted and how legitimate they are. The ability of interest groups can be of particular importance in the context of monetary policies with respect to the pivotal role of expectations of households. They appear to play an important role in policy making in practically all countries. Role of interest group in Monetary Policy formulation : To make any policy information of various serial economic and political factors are very important . Interest groups can be regarded as mediators of their members expectations increasing market transparency. business and agriculture community express .
Some different interest groups i. the association of garments BGMEA.to make the monetary policy successful.e. The largest business association FBCCI. So to fulfill the implementation of monetary policy the central bank of Bangladesh involves all the . the agriculture community who play vital role in developing the economic condition. Besides the immigrant people can play important role in increasing the foreign currency reserve who are recently emerged themselves as a shining sector of Bangladesh economy. The contribution of the interest group knew no bounds. The BGMEA can oppose the monetary policy as they contribute about 60% of foreign currency. The business association FBCCI can stop all the business activities in the industrial and agricultural sector.their demands and sometimes creates pressure against the existing policy. As the groups are the vital part of our economy. the criteria must be fulfilled in that case. Role of Interest group in monetary policy implementation: The central bank set a numbers of criteria in the monetary policy for accelerating the economic growth . As the central bank makes the monetary policy to do so . they can hinder any development initiative at an y time. the BGMEA the DCCI.to increase the agricultural production are very essential where the farmers are the interest groups can oppose to implement any contradictory decision .mass media and create pressure to formulate the policy according to their interests. the CCCI express their demands through press conference . the FBCCI. So the central bank faces various challenges to make the monetary policy above all.to accelerate the economic growth . The objectives of making sure employment opportunities .hence their demands are very important.
The monetary policy evaluation becomes very difficult in so far for the inclination of providing information or impediments from this groups . To do so the monetary policy maker must needs the interest group who have influenced greatly during the formulation and implementation stages of this policy. the agricultural community as well as the immigrant people directly or indirectly contribute largely .Without their participation the implementation of monetary policy is very much impossible. the real economic growth is difficult to count. Role of interest group in monetary policy evaluation : Evaluation is the assessment of the overall effectiveness of a programming I meeting its objectives.the business. . Now and then the owner show large number of workers compare to the exact number. evaluation of monetary should involve the interest group to get the real features of the economy.interest groups i. sometimes the business and industrial sectors don’t give exact information in afraid of providing tax o f that resources . the industrial . the material and political resources at interest groups disposal in the area of trade and industry may not be sufficient to bring effective influence to bear one monetary policy makers.e. besides this the agriculture production and expenditure and the employment opportunities in this sector is difficult to estimate without the help of agro community. I n line with the other stages of policy.
The central bank of the country has to perform very carefully with the consultation of the interest groups who can influence policy strongly and sometimes stance as an impediment for the policy. so the role of interest groups is not less important in any corner of the monetary policy formulation implementation and evaluation.Conclusion : As attaining and maintaining the highest sustainable output growth towards rapid reduction of pervasive poverty is the over riding priority for monetary policy in Bangladesh. . the role of industrial agriculture business and environmental sectors are vital which are known as interest group sectors of the policy. the monetary stance is subject to continuous to review in the light of evolving situation may shift to a neutral stance and may even move further to an accommodative stance as values of key macro-economic variables changes. but in the successful formulation implementation and evaluation of monetary policy.