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Bangladesh Bank

Bangladesh Bank Monogram

Headquarters Established Governor Central Bank of Currency ISO 4217 Code Website Preceded by

Dhaka 16 December 1971 Salehuddin Ahmed Bangladesh Taka BDT [1] State Bank of Pakistan

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History of Bangladesh bank

After the liberation war, and the eventual independence of Bangladesh, the Government of Bangladesh reorganized the Dhaka branch of the State Bank of Pakistan as the central bank of the country, and named it Bangladesh Bank. This reorganization was done persuant to Bangladesh Bank Order, 1972, and the Bangladesh Bank came into existence with retrospective effect from 16th December, 1971. The general superintendence and direction of affairs and business of the Bank are entrusted to a nine member Board of Directors which consists of the Governor as chairman, a Deputy Governor, three senior government officials and four persons having experience and proven capacity in the fields of banking, trade, commerce, industry or agriculture - all nominated by the government. The board, which is the highest policy making body, meets at least six times a year and at least once every quarter under the chairmanship of the Governor. The Governor, appointed by the government as the chief executive officer, directs and controls all the affairs of the Bank on behalf of the Board.

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The broad objectives of the Bank are:

a) To regulate the issue of the currency and the keeping of reserves; b) To manage the monetary and credit system of Bangladesh with a view to stabilizing domestic monetary value; c) To preserve the par value of the Bangladesh Taka; d) To promote and maintain a high level of production, employment and real income in Bangladesh; and to foster growth and development of the country's productive resources for the national interest Functions This department is basically responsible for issuing prudential guidelines to ensure a sound banking system in the country. The major areas covered are: 1. Determination of capital adequacy requirements, asset classification and provisioning standards. 2. Review and drafting of banking statutes. 3. Framing policies regarding Reserve Requirements. 4. Supervision of the internal control system of the banks. 5. Formulate policies with a view to restraining insider lending. 6. Determination of accounting and disclosure standard to the banks. 7. Initiate disciplinary action against any Board or members of the Board of Directors of the banks. 8. Issuance of directives and compliance thereof under Banking Company Act, 1991.

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MONETARY POLICY
Monetary policy is the process by which the government, central bank, or monetary authority manages the money supply to achieve specific goalssuch as constraining inflation or deflation, maintaining an exchange rate, achieving full employment or economic growth. (Usually the goal of monetary policy is to accommodate economic growth in an environment of stable prices.) Monetary policy can involve changing certain interest rates, either directly or indirectly through open market operations, setting reserve requirements, acting as a last-resort lender (i.e. discount window lending), or trading in foreign exchange markets. History of monetary policy Monetary policy is associated with currency and credit. For many centuries there were only two forms of monetary policy: decisions about coinage, and the decision to print paper money to create credit. Interest rates, while now thought of as part of monetary authority, were not generally coordinated with the other forms of monetary policy. Monetary policy was seen as an executive decision, and was generally in the hands of the authority with seniorage, or the power to coin. With the advent of larger trading networks came the ability to set the price between gold and silver, and the price of the local currency to foreign currencies. This official price could be enforced by law, even if it varied from the market price. With the creation of the Bank of England in 1694, which acquired the responsibility to print notes and back them with gold, the idea of monetary policy as independent of executive action began to be established. The goal of monetary policy was to maintain the value of the coinage, print notes which would trade at par to specie, and prevent coins from leaving circulation. The establishment of central banks by industrializing nations was associated then with the desire to maintain the nation's peg to the gold standard, and to trade in a narrow band with other gold back currencies. To accomplish this end, central banks as part of the gold standard began setting the interest rates that they charged, both their own borrowers, and other banks who required liquidity. The maintenance of a gold standard required almost monthly adjustments of interest rates. During the 1870-1920 period the industrialized nations set up central banking systems, with one of the last being the Federal Reserve in 1913.By this point the understanding of the central bank as the "lender of last resort" was understood. It was also increasingly understood that interest rates had an effect on the entire economy, in no small part because of the marginal revolution in economics, which focused on how many more, or how many fewer, people would make a decision based on a change in the economic trade-offs. It also became clear that there was a business cycle, and economic theory began understanding the relationship of interest rates to that cycle. (Nevertheless, steering a whole economy by influencing the interest rate has often been described as trying to steer an oil tanker with a canoe paddle.)

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The advancement of monetary policy as an engineering discipline has been quite rapid in the last 150 years, and it has increased especially rapidly in the last 50 years. Monetary policy has grown from simply increasing the monetary supply enough to keep up with both population growth and economic activity. It must now take into account such diverse factors as:

short term interest rates; long term interest rates; velocity of money through the economy; exchange rates; credit quality; bonds and equities (corporate ownership and debt); government versus private sector spending/savings; international capital flows of money on large scales; financial derivatives such as options, swaps, futures contracts, etc.

Developing countries & Monetary Policy : Developing countries may have problems operating monetary policy effectively. The primary difficulty is that few developing countries have deep markets in government debt. The matter is further complicated by the difficulties in forecasting money demand and fiscal pressure to levy the inflation tax by expanding the monetary base rapidly. In general, central banks in developing countries have had a poor record in managing monetary policy. Types of monetary policy Monetary Policy: Inflation Targeting Price Level Targeting Monetary Aggregates Fixed Exchange Rate Gold Standard Mixed Policy Target Market Variable: Interest rate on overnight debt Interest rate on overnight debt The growth in money supply The spot price of the currency The spot price of gold Usually interest rates Long Term Objective: A given rate of change in the CPI A specific CPI number A given rate of change in the CPI The spot price of the currency Low inflation as measured by the gold price Usually unemployment + CPI change

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Monetary policy tools

Monetary base

Monetary policy can be implemented by changing the size of the monetary base. This directly changes the total amount of money circulating in the economy. A central bank can use open market operations to change the monetary base. The central bank would buy/sell bonds in exchange for hard currency. When the central bank disburses/collects this hard currency payment, it alters the amount of currency in the economy, thus altering the monetary base. Reserve requirements The monetary authority exerts regulatory control over banks. Monetary policy can be implemented by changing the proportion of total assets that banks must hold in reserve with the central bank. Banks only maintain a small portion of their assets as cash available for immediate withdrawal; the rest is invested in illiquid assets like mortgages and loans. By changing the proportion of total assets to be held as liquid cash, the Federal Reserve changes the availablilty of loanable funds. This acts as a change in the money supply. Discount window lending Many central banks or finance ministries have the authority to lend funds to financial institutions within their country. The lended funds represent an expansion in the monetary base. By calling in existing loans or extending new loans, the monetary authority can directly change the size of the money supply. Interest rates The contraction of the monetary supply can be achieved indirectly by increasing the nominal interest rates. Monetary authorities in different nations have differing levels of control of economy-wide interest rates. Bangladesh Bank can set the discount rate, as well as achieve the desired Central Funds Rate by open market operations. This rate has significant effect on other market interest rates, but there is no perfect relationship. In other nations, the monetary authority may be able to mandate specific interest rates on loans, savings accounts or other financial assets. By raising the interest rate(s) under its control, a monetary authority can contract the money supply, because higher interest rates encourage savings and discourage lending. Both of these effects reduce the size of the money supply.

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Currency board A currency board is a monetary authority which is required to maintain an exchange rate with a foreign currency. This policy objective requires the conventional objectives of a central bank to be subordinated to the exchange rate target. The virtue of this system is that questions of currency stability no longer apply. The drawbacks are that the country no longer has the ability to set monetary policy according to other domestic considerations, and that the fixed exchange rate will, to a large extent, also fix a country's terms of trade, irrespective of economic differences between it and its trading partners.

Monetary policy of Bangladesh & Credit control policy

Both in developed and developing economies, monetary policy seeks to maintain price stability accompanied by sustained stable output growth in the face of internal and external shocks that are faced from time to time. For developing economies like Bangladesh with significant underemployment/under exploitation of production factors, stimulating higher growth is imperative for rapid reduction and eventual elimination of endemic poverty, and is therefore an overriding priority. The stimulus provided by monetary policy in accommodating the growth aspirations must not however jeopardize macroeconomic stability and future growth; and the pursuit of monetary policy comprises of various supportive measures to attain the highest sustainable output growth while adjusting smoothly to internal and external shocks that the economy encounters from time to time. Objectives of the monetary policy of the Bangladesh Bank as outlined in the Bangladesh Bank Order, 1972 comprise of attaining and maintaining of price stability, high levels of production, employment and economic growth. In the decades of seventies and eighties, monetary policy in Bangladesh was conducted with full direct control on interest rates and exchange rates, as also on the volumes and directions of credit flows. The situation began changing in the nineties with the abolition of directed lending and gradual liberalization of interest rates; the change process culminating in transition to market based exchange rate of Taka from 31st May 2003. From then on, interest rate and exchange rate are both market driven, exchange rate is no longer in the role of nominal anchor for prices.

Monetary policy in Bangladesh is formulated around inflation and output growth rates as 7

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the basic policy targets. Levels and growth paths of relevant monetary aggregates such as reserve money, broad money and domestic credit are also projected and monitored as intermediate targets in conducting monetary policy. CPI inflation, expressed as the rate of change of Consumer Price Index, is used in Bangladesh for measuring price stability in conducting monetary policy. Some central banks opt for suitably defined 'core inflation' excluding from consumption basket items with typically high seasonal price volatility, viewed as better representing the actual underlying inflation trend. The target level of CPI inflation is chosen taking into account the country's past long run inflation performance, and the domestic and external factors driving the current trend of domestic inflation. From the early nineties, annual average CPI inflation has consistently been at single digit levels, reaching a low of 1.94 percent in FYO1 and edging upwards thereafter, in line with the bottoming out and subsequent upswing of global inflation. Other than the administered energy prices, consumer prices in Bangladesh are market driven, and as mentioned earlier, trends of domestic prices of tradable in the open economy are increasingly mirroring global price trends, the divergence between domestic and global inflation arising largely from the price trends of the nontaxable

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TIGHTEN THE SITUATION

Instruments employed. Interest rate: In tightening the monetary policy stance, key policy rates (treasury bill bond auction yields, ratio and reverse ratio, interest rates of Bangladesh Bank) have been raised and maintained on uptrend, for these in turn to raise the rates of other financial costs and returns, restraining demand growth in the real sector. Revision of the statutory ratios for scheduled banks: The markets are yet to gain sufficient depth to respond with the changes in policy interest rates. To compensate for this inadequate interest rate responsiveness of markets, policy interest rate interventions in Bangladesh are at times supplemented by changes in the Cash Reserve Requirement (CRR) and Statutory Liquidity Ratio (SLR) for scheduled banks, thus influencing the volumes as well as costs of funds available for credit growth. In October 2005, the CRR and SLR were revised upward from 4.5 percent and 16.0 percent respectively to 5.0 percent and 18.0 percent of time and demand liabilities of scheduled banks, with a view to slowing down overall domestic credit growth as well as the growth of credit to the private sector. Annual monetary programs based on the inflation and GDP growth targets of monetary policy provide a convenient framework for interventions in monetary developments, and for monitoring the outcome of the monetary policy stance pursued. Based on the assumption that inflation rises and falls with increase and decrease in the rate of growth of money stock, the annual monetary programme targets a growth path for broad money consistent with the inflation and real GDP growth targets of monetary policy, allowing for the likely change in income velocity of money. The monetary program is nevertheless very useful as framework for gauging the growth supportiveness and the inflation stabilization effectiveness of the monetary policy stance pursued. The broad money growth target of the monetary programme has further been disaggregated into sub targets on the asset and liability side. Our present challenge is to stabilize inflation rate. One caveat the pro-poor growth momentum is facing-is the rise in inflation rate-not only caused by the aftermath of the flood last year and rapid credit expansion but also due to rise in fuel and commodity prices around the globe; which is beyond our control. Inflation rate that stood at 7.35 percent in June 05 rose to 7.95 percent in November 05. With a brief down swing during early months of 2006, it again started moving up to 6.17 percent in March 06. We hope the monetary stance and prospective growth along with optimistic global economic scenario would bring down the price level within a short period.

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The tightened monetary stance now being pursued is intended not to slowdown output growth but to curb excess demand arising from inflationary expectations, thereby supporting sustained stable output growth over the near and medium term. The fourteen percent growth of credit to the private sector programmed for FY06 would be sufficient to support seven percent real GDP growth if CPI inflation is seven percent, even higher real GDP growth will be supported with lower inflation. The monetary stance is subject to continuous 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 macroeconomic variables change over time.

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Monetary survey
(Taka in million) Percentage Changes of November, 2006 November, October, November, over Components 2006 2006 2005 October, November, 2006 2005 1. NET FOREIGN ASSETS 226404 222103 152643 1.94 48.32 (a) BANGLADESH BANK 197507 190957 131487 3.43 50.21 (b) DEPOSIT MONEY 28897 31146 21156 -7.22 36.59 BANKS 2. NET DOMESTIC ASSETS1702952 A. DOMESTIC CREDIT (a+b) (a) BANGLADESH BANK Claims on Public Sector Claims on Govt.(net) 1903425 266821 265923 256587 1697160 1450087 1889597 1601141 277311 276458 267122 9336 853 190766 190098 180309 9789 668 0.34 0.73 -3.78 -3.81 -3.94 0 5.28 1.51 3.13 8.76 -0.62 1.22 4.18 5.02 35.75 0.53 17.44 18.88 39.87 39.89 42.3 -4.63 34.43 16.04 2.74 -4.08 8.36 18.82 32.72 74.43 122.45 20.38

Claims on Other Public 9336 Claims on Private Sector (b) DEPOSIT MONEY BANKS Claims on Public Sector Claims on Govt.(net) 898 1636604 250768 105708

1612286 1410375 243157 97190 145967 244081 110210 133871

Claims on Other Public 145060 Claims on Private Sector B. NET OTHER ASSETS (a) BANGLADESH BANK (b) DEPOSIT MONEY BANKS 3. BROAD MONEY(1+2) 1385836 -200473 -207658 7185 1929356

1369129 1166294 -192437 -151054 -197730 -119049 5293 -32005

1919263 1602730

Source : Statistics Department, Bangladesh Bank

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Monetary policy and investment Officially, the rate of inflation in Bangladesh is about 8 per cent. The rate is considered as a conservative one by non-official sources who maintain that the inflation rate is in the double digits. Inflation control, therefore, is important for the economy, and from that perspective, Bangladesh Bank's tight monetary policies or efforts to contain inflation by decreasing the flow of money may be seen as a routine approach to regulating inflationary pressure. But the Bangladesh Bank (BB) needs to take other issues into consideration while applying traditional money controls through its policies. No economy can grow without investment and although the cumulative investment figures for the current year are not available, the same are anticipated to be at a record high level. This investment level needs to be maintained or further improved for the economy to fare better-- than it has so far-- in the New Year. The economy needs to grow at an accelerated pace from its average 5 per cent growth to higher growth like 7 to 8 per cent annually to be able to more than cope with massive unemployment and the problem of poverty. The prerequisite of higher investment is the availability of finance. Investors do not invest entirely their own resources on enterprises. They borrow from banks and other financial institutions. Provided the interest rates on loans from these institutions are seen as favorable, investor will borrow more and more and invest the same, together with their own capital, in new enterprises or in expanding productive activities in the existing ones. The lending rates from financial institutions are between 9 and 15 per cent. According to reports, the lending rate has increased by one percentage point more already from the monetary policies implemented by BB and it could climb even higher in the pursuit of such policies. Thus, the question that cannot help but arise is what the impact of tighter monetary policies will be on investment or economic growth? Investors in any situation are inspired by low lending rates and not by progressively higher ones. Higher lending rates actually discourage investment which then impacts negatively on economic growth. There has been an outcry in the country to lower the interest rate on lending to promote greater investment activities. It appeared that the merit of this reasoning was recognized by the BB and interest rates on loans were reduced notably for a while. The higher investments in the economy during the last two years had a relationship to the lowered lending rates. But a reversal of this policy and allowing the interest rates on leading to rise again could prove to be a damper on investment activities. Besides, the BB also needs to take into account the non economic factors behind price rises that have hardly any links with inflation. According to textbook theories, price rise of goods and services is the inalienable companion of a growing inflationary situation. But price rises in the present context of Bangladesh appear to be more for non economic reasons like outcome of crimes such as hoarding, profiteering, and syndicate formation to manipulate prices upwards, among others. 12

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Thus, BB ought not to frustrate the trend towards higher investment by exercising tighter monetary policies. It needs to prudently apply controls in money supply so that investors are not disheartened

Monetary Policy and Islamic Banking in Bangladesh

REGULATION OF ISLAMIC BANKING IN BANGLADESH: ROLE OF BANGLADESH BANK

The banking system of Bangladesh is composed of a variety of banks working as Nationalized Commercial Banks (NCBs), Private Banks, Foreign Banks, Specialized Banks and Development Banks. However, 28 out of 50 banks in Bangladesh are private, of which only 5, namely Islami Bank Bangladesh Limited, Al-Baraka Bank Bangladesh Limited, AlArafah Islami Bank Limited, Social Investment Bank Limited, and Faysal Islamic Bank of Bahrain E.C. have been operating as Islamic banks. Besides these full-fledged Islamic banks, two conventional banks in the private sector namely the Prime Bank Limited and Dhaka Bank Limited, have opened two full-fledged Islamic banking branches and Islamic Banking Counter respectively to deal with the Islamic banking business parallel to their conventional operations. The operations and accounts of these branches and counter are maintained separately from the mainstream business of the respective banks.

The Genesis of Islamic Banking in Bangladesh

Bangladesh inherited an interest based banking system right from the British Council period and employment of the Muslim as in banks was more or less restricted. During the period 1947-1971 when country was a part of Pakistan, banking of course came under Muslim control but the system did not changed (M.A.Haque, 1994).Though Pakistan was created in the name of Islam, the rulers did not take any practical attempt to establish economic system based on Islamic Principles. Since independence, Bangladesh saw a new trend in banking both at home and abroad during the seventies, Islamic Development Bank (IDB) at the international level and a number of Islamic banks at national levels were established in the Muslim world. At home, some entrepreneurs were actively working for introduction of Islamic banking. Two professional bodies Islamic Economics Research Bureau (IERB) and Bangladesh Islamic Bankers Association (BIBA) were taking practical steps for imparting training on Islamic Economics and banking to a group of bankers and arrange some national and international seminars/workshops to mobilize local and foreign people investors. Their professional and right-thought activities were streamlined by a number of enthusiastic businessmen in Bangladesh. They concentrated mainly in mobilizing equity capital for the

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prospective Islamic bank. Due to continuous and dedicated work of the above groups and individuals and active support from the Government, Islamic banking could be established in early eighties. Islamic banks have been operating in Bangladesh for about one and half decade alongside with the traditional banks. Out of over 50 banks only five banks (including one foreign Islamic bank) and two Islamic banking branches of a traditional bank, Prime Bank Limited (PBL) have been working on Islamic principles. Like any other traditional commercial banks, they do mobilize deposits and provide loans. But their modes of operation, based on Shariah, are different from the other traditional commercial banks. However, the five Islamic banks operating in Bangladesh are: 1. Islami Bank Bangladesh Limited (IBBL); 2. Al Baraka Bank Bangladesh Limited (AL-Baraka); 3. Al-Arafah Islami Bank Limited (Al-Arafah); 4. Social Investment Bank Limited (SIBL); and 5. Faysal Islamic Bank of Bahrain EC (FIBB). Besides the above five Islamic banks, Prime Bank Limited has opened two Islamic Banking branches on 18 December, 1995 and 17th December, 1997 respectively while Dhaka Bank Limited has started operation with an Islamic Counter at its Principal Office in conjunction with conventional banking operations since inception of the bank in July, 1995.
Monetary Policy and Islamic Banking in Bangladesh

The central bank has the sole authority to issue currency and manage the liquidity of the economy. Among others, the objectives of the monetary policy are to ensure stability of the value of Taka and regulate the banking system prudently. As a central bank, Bangladesh Bank was not aloof from the ongoing changes in the world financial system. Bangladesh Bank had issued license in 1983 for establishment of the first Islamic bank in Bangladesh. The Bangladesh Government had participated in establishing the Bank, by subscribing five percent share in the paid up capital. Considering lack of Islamic financial markets and instruments or products in the country, Bangladesh Bank had granted some preferential provisions for smooth development of Islamic banking in Bangladesh. Among the preferential provisions, the following are important. 1. Islamic banks in Bangladesh have been allowed to maintain their Statutory Liquidity Requirement (SLR) at 10% of the total deposit liabilities while it is 20% for the conventional banks. This provision had facilitated the Islamic banks to hold more liquid funds for more investment and thereby generate more profit. 2. Under indirect monetary policy regime, Islamic banks were allowed to fix up their profit-sharing ratios and mark-ups independently commensurate with their own policy and banking environment. This freedom in fixing PLS ratios and Mark-up rates had provided scope for the Islamic banks to follow the Shariah principles independently for realizing goals of Islamic Shariah. Source: International Journal of Islamic Financial Services Vol. 2 No.1
IMF suggests tighter monetary policy

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International Monetary Fund (IMF) has suggested further tightening of Bangladesh Bank's monetary policy to ease inflationary pressure. "This is the key challenge for the authorities in Bangladesh," Thomas Rumbaugh, IMF adviser for the Asia and Pacific, told a press briefing at the IMF Resident Mission in Dhaka yesterday. The IMF official said this replying to a question whether their prescription to contain inflation would be possible if the government raises the fuel prices further and the import cost increases due to the soaring dollar prices. He insisted on increasing the interest rates further as a means of tight monetary policy. "Some further increases in interest rates may be required to bring inflation in line with other countries," he said. The briefing was organized at the end of an 8-day mission of an IMF team led by Thomas that reviewed the recent economic developments and the implementation of policies supported by the Poverty Reduction and Growth Facility (PRGF) arrangement. "It's inevitable that the government will have to adjust the oil prices," Thomas said, adding that the price hike will have onetime impact on the inflation, not a permanent one. "That's why Bangladesh Bank needs to keep very prudent monetary policy so that the inflation does not go up," he said. During their visit to Bangladesh, the mission members met Finance and Planning Minister M Saifur Rahman, Finance Secretary Siddiqur Rahman Chowdhury, Bangladesh Bank Governor Dr Salehuddin Ahmed and senior government officials. "Growth momentum in Bangladesh's economy has been maintained during this fiscal year,"Thomas told the briefing on their observations. He expected that the GDP growth would be about 6 percent but observed that inflation, though declined slightly, at 6.5 percent was still higher than desirable. Thomas added that the external current account was better than expected in the first half of FY06 with strong growth in exports and some slowing in non-oil imports. "Despite these positive developments, considerable macroeconomic challenges remain there," he said, suggesting that Bangladesh Bank should continue the tightened policy during the days to come. Apart from further raising the interest rates and the prices of fuel oil, the IMF also suggested increasing revenue collection as a matter of priority as the government is

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preparing the budget of FY07. On petroleum prices, it observed that the present policy entails considerable and growing economic costs, mainly benefiting higher income consumers, reducing economic efficiency, and only delaying the inevitable adjustments as losses continue to mount on the BPC and the NCBs financial position deteriorates. Replying to a question, Thomas said there are some liquidity problems in the foreign exchange market while the market needs some improvements in terms of efficiency. In response to another query, he said it would be possible to register faster GDP growth even if there are some difficulties in agriculture as the industry and services sectors are showing robust growth. The 3-year PRGF arrangement was approved in June 2003 with a total lending commitment of $493 million, being disbursed in seven installments, which were later augmented by about $75 million under IMF's Trade Integration Mechanism (TIM). Five installments worth $409 million have so far been released with the latest one ($97 million) in February. Discussions on the release of the sixth installment will take place in May this year if the government continues to implement policies, particularly on the NCBs and the NBR.

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Conclusion
Through above discussion, we tried to explain some important issues in monetary policy and its implication in overall economic situation of Bangladesh. Bangladesh Bank still work heard to get the overall economic trend of the country stable by checking the monetary policy and implementing some other relevant policy which will prove to be effective in the long run as well as it will help to create congenial economic environment in the economy.

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Reference
1. Banks and legal Environment. 2. Commercial Bank Management.

Dr.R.M.Debnath Peter Rose

3. The Daily Star (Fri. March 10, 2006) 4. Bangladesh bank Web Site.

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Executive Summary
Bangladesh Bank came into existence with retrospective effect from 16th December, 1971. The general superintendence and direction of affairs and business of the Bank are entrusted to a nine member Board of Directors which consists of the Governor as chairman, a Deputy Governor, three senior government officials and four persons having experience and proven capacity in the fields of banking, trade, commerce, industry or agriculture - all nominated by the government. The board, which is the highest policy making body, meets at least six times a year and at least once every quarter under the chairmanship of the Governor. The broad objectives of the Bank are to manage the monetary and credit system of Bangladesh with a view to stabilizing domestic monetary value. Functions Review and drafting of banking statutes, Determination of capital adequacy requirements, asset classification and provisioning standards. To preserve the par value of the Bangladesh Taka; formulate policies with a view to restraining insider lending. Monetary policy is the process by which the government, central bank, or monetary authority manages the money supply to achieve specific goals. Monetary policy can involve changing certain interest rates, either directly or indirectly through open market operations, setting reserve requirements, acting as a last-resort lender (i.e. discount window lending), or trading in foreign exchange markets. Monetary policy is associated with currency and credit. For many centuries there were only two forms of monetary policy: decisions about coinage, and the decision to print paper money to create credit. The tools of the monitory policy are monetary base, reserver requirements, interenwest rate, currency board, etc. Monetary policy in Bangladesh is formulated around inflation and output growth rates as the basic policy targets.

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Letter of Transmittal

Date: 7th March, 2007 To Md. Harunur Rashid Lecturer Department of Business Administration Dhaka City College Sub: Submission of Report on Monetary Policy & Its Implication of Bangladesh Bank. Dear Sir, It is a great pleasure to submit our report Monetary Policy & Its Implication of Bangladesh Bank. We have given our best effort to furnish the report with relevant information that we have collected from many source. We have concentrated our best efforts to achieve the objectives of the work and hope that our endeavor will serve the purpose. We shall be highly grateful and obliged if you kindly accept our report and evaluate it with your sagacious judgment.

Thank you Sincerely GALAXY BBA 5th Batch Sec- A Dept. of Business Administration Dhaka City College

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