Beruflich Dokumente
Kultur Dokumente
Submitted to:
Md. Thoufiqul Islam
Assistant Professor Department of Management Studies University of Dhaka
Submitted By:
Name Md. Naimul Haque Jahidul Haque Asma Ul Husna Md. Shafiqul Islam Md. Jonayed Roll 114 130 131 147 215
Submission Date
22-03-2010
University of Dhaka
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Acknowledgement
We acknowledge my heartiest gratefulness to all who have extended their hand of co-operation in preparing the report. At first we express my gratitude and acknowledge our indebtedness to our relevant course instructor Md. Thoufiqul Islam for her overall co-operation, guidance, advice and support in discharging our responsibilities consciously and preparing this report. It was really personal assignment but we are grateful to all of my group members who helped me a lot and provide many data to make this report successful. We also acknowledge some of our senior brothers. They have really given us time, were never annoyed by our never ending questions both inside and outside the topic, and have told what the corporate world really is. Finally we want to give thanks to our honorable teacher for giving me such a good assignment and greatly appreciate the co-operation and help we receive from our classmate and other.
Letter of Transmittal
22 March, 2010 To Mohammed Thoufiqul Islam Assistant Professor Department of Management Studies Faculty of Business Studies University of Dhaka
Thank you for your advice Sincerely yours. On behalf of Group Azure Asma Ul Husna Roll: 131
Executive Summary
This report is a partial requirement for the fundamentals of Macroeconomics Course under Department of Management Studies University of Dhaka. This report is titled Trend analysis on Monetary Policy of Bangladesh. Guided Teacher Md. Thoufiqul Islam assigned the report to us. The broad and overall objective of this report is to provide the reader with an application of the overall monetary condition of the Bangladesh. Unlike most of other economies in the region and elsewhere, the governor said output growth in Bangladesh has so far been mildly impacted by the ongoing global economic downturn with estimated 5. 9 percent real GDP growth in last 2008-09 fiscal year following 6. 2 percent of previous 2007-08 fiscal year. In terms of inflation, the MPS said the immediate past 2008-09 fiscal year (July 2008-June 2009) began with double digit annual average CPI inflation of 10 percent, which later on came down following robust domestic food production and the collapse of global commodity price bubble. The annual average CPI inflation dipped to 7.3 percent in May 2009 and is likely to fall to 7.0 percent in June 2009, it said. The MPS said the decline in domestic annual average CPI inflation is likely to be slower and smaller, and is projected to be at 6.5 percent on average in current 2009-10 fiscal year
Table of Contents
Seria l
01. 02. 03. 04. 05. 06. 07. 08. 09. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. 21. 22. 23. 24. 25. 26.
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1 3 4 5 7 8 8 9 9 10-11 12 13-14 15 16-17 18-19 20-21 24 25 26-27 28-30 31-32 33-34 35 36 37
Literature Review
1. By Dr Salehuddin Ahmed Governor, Bangladesh Bank Fri, 4 Aug 2006, 2. Bangladesh's half yearly monetary policy designs 6.0 pct GDP growth> Source: Xinhua, July 20 2009
3. Monetary Policy Statement: A Review
(Ahsan H. Mansur) 9 July, 2009 Dr. Atiur Rahman. 4. Table 1: Rate of Inflation, End-of-Period (Base :FY96=100) Source: Bangladesh Bureau of Statistics. 5. Table 2. Monetary Aggregate: Y-o-Y Growth in Percent) Source: Bangladesh Bureau of Statistics. 6. Table 3. Bangladesh : Monetary Survey Under Alternate Scenarios (Source: Bangladesh Bureau of Statistics)
7. www.monetary policy of Bangladesh 8. Rodger.A.Arnold (Macro Economics) Page # 229
To informed the overall monetary policy of Bangladesh Inflation rate Effect of the inflation of the Monetary policy CPI in monetary policy Objective of the monetary policy Problem of monetary policy Exchange rate of in the monetary policy
Methodology
The secondary data for completing the analysis on monetary policy had been collected in various ways. The different sources were from prior research report, annual reports of Bangladesh bank, Speech of the Governor of Bangladesh on the basis of the monetary policy. Different books and periodicals related to the banking sector. Newspapers and Internet and various web sites. The article of Bangladesh bank. & from financial express.
Bibliography
1. Table on Monetary Aggregate: Y-o-Y Growth in Percent 2. Table on Rate of Inflation, End-of-Period (Base: FY96= 100) 3. Graphical Presentation of Inflation Trend 4. Graphical Presentation of GDP Growth Rate 5. Graphical Presentation on CPI Inflation 6. Table on Bangladesh: Monetary Survey under Alternate Scenarios
Software Used
For preparing this report we used 1. Micro Soft Office XP. 2. MS Word. 3. MS Excel.
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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 encounter from time to time policy.
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*Monetary policy in Bangladesh is formulated around inflation and output growth rates as 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 target conducted by the Bangladesh government. 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 internal and external credit flows. But in the nineties the situation become changing with the abolition of directed lending & gradual liberalizations of interest rates.
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5. Foreign reserves have increased by more than $1.5 billion in the last quarter and we would expect a similar outcome in the next six months, exceeding the $8.0 billion level by end-2009.
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Under these circumstances, it would be a major challenge for BB to contain M2 (broad money) growth at 15.5% as envisaged in the Statement. Bangladesh Bank authorities certainly are aware that excessive M2 expansion would put further pressure on the inflation rate, thereby undermining the inflation objective. Hence the appropriate monetary policy strategy in the Bangladesh context would be to achieve the goal of price stability with the highest sustainable output growth. There are various target which is covered under monetary policy.
Table 1.Monetary Aggregate: Y-o-Y Growth in Percent) FY07 FY08 Net Foreign Asset 49.42 15.07 Net Domestic Asset 12.57 18.08 Domestic Credit 14.39 21.83 Public Credit 12.43 11.68 Private Credit 15.01 24.94 Broad Money 17.06 17.61 Reserve Money 16.10 20.64
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Trends of inflation
Inflation has emerged as a global phenomenon in recent months largely reflecting the impact of higher food and fuel prices and strong demand conditions especially in the emerging economies. In line with global trends, Bangladesh also experienced rising inflation with the 12-month average CPI inflation touching 9.94 percent in June 2008. The present cycle of rising inflation is the longest in the history of Bangladesh persisting for seven consecutive years which, in earlier episodes, usually showed fluctuating movements with the rising trend continuing for 2/3 years. In the backdrop of recent global developments, this note examines some of the Characteristics of inflation in Bangladesh including the contribution of major commodity groups to overall inflation in rural and urban areas.
on global economic growth are the slowdown in the US economy, unfolding credit crunch besetting US and Europe, and spillover effects of growth slowdown in major developed countries to other developed and emerging economies through trade, financial market, and other linkages. The current growth projections foresee a deceleration of real growth in emerging and developing economies to6.7 percent in 2008 and further to 6.6 percent in 2009 from 7.9 percent in 2007.
Table 2:Rate of Inflation, End-of-Period (Base :FY96=100) Inflation Period 2004-05 2005-06 2006-07 2007-08 2008/2009 July September December March April May 13.93 12.07 6.83 4.49 4.80 4.89 5.92 7.19 4.76 6.11 6.53 6.49 Food 8.73 8.81 9.82 14.10 Non-Food 5.32 5.73 8.34 3.54
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an upward trend, external environment may not be much favorable in the coming months and BB may have to take a much more activities. 8. The result of the rapid buildup of net foreign assets (NFA) due to continued large remittance inflows and the decline in import payments in recent months.
We do not think that Bangladesh Bank has made any strong attempt to sterilize the liquidity impact of the reserve buildup and the consequent liquidity expansion is certainly creating pressures somewhere; the building up of inflationary pressures in asset markets (stock market and real estate) and in nonfood prices is probably the manifestation of such pressures. Because of above considerations, the issue of inflation and BBs policy response should have deserved much more attention in the Statement in the form of careful analysis and providing clear indications about its plan.
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In f la t io n T r e n d
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io lt f In e g r a v A
a v a r a g e i n fl a t i o n y e a r
YEAR
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6.6 6.4 6.2 6 5.8 5.6 5.4 2006 2007 Year 2008 2009 GD Growth R P ate
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CPI Inflation
. In China, CPI inflation increased to 7.1 percent in June 2008 (which moderated f Inflation in most Emerging market economies (EMEs) rose at higher rates due to rising oil, other commodity, and food prices and greater weight of food and energy in consumption baskets rom a high of 8.7 percent in February 2008) from 4.4 percent a year. Despite hardening of inflation, many central banks in advanced economies persisted with accommodative monetary policy fostering market liquidity and promoting growth. In the face of the twin challenge of controlling inflation and remaining alert to downside risks from the slowdown in the advanced economies, the emerging and developing economies adopted varied responses. While countries like China, India, and Republic of Korea tightened
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6. Stability of the inflation rate is an important policy and low inflation rate produce more stable inflation rate. 7. Greater exchange rate flexibility could help ease the burden on monetary policy & reduce the costs of managing liquidity for BB, while dampening inflationary pressures. 8. In the long run, there is also scope to strengthen the monetary policy framework and stabilize systemic liquidity. To enhance the credibility and predictability of monetary policy BB should consider moving to a standing facility for repo and reverse repo operations and adopting an interest rate corridor once fully functional open market operations are in place. In addition, averaging reserve requirements on a two-week maintenance period would help control short-term volatilidity. It is very important that monetary aggregates contain important information about the economy. So from all of these discussion we see that how monetary rules affect the economy and its importance in fixing the exchange rate. The effect that monetary policy is having on the exchange rate and the effect that the exchange rate is having on the economy may be matters that Monetary Policy Challenge teams will need to take into account when making their Official Cash Rate recommendation.
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Table 3. Bangladesh : Monetary Survey Under Alternate Scenarios (percentage change over the previous year) Components Bangladesh Bank PRI Estimates Estimates NET FOREIGN ASSETS -4.1 NET DOMESTIC ASSETS 19.3 DOMESTIC CREDIT 18.7 Public Sector Credit 25.3 Credit to Govt.(net) 29.6 Credit to Other Public 0 Private Sector Credit 16.7 BROAD MONEY 15.5 ** If Broad money is 15.5% and Public borrowing 167.5 Billion Taka 21.8 14.4 14 25.2 29.2 8.7 10.2 15.5
Last
years
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BB monetary projection assumes a significant decline in foreign reserves, it can accommodate a respectable growth in private sector credit (16.7%). In the event of the likely scenario that the NFA (which is a part of M2) increases by about 20% as happened in FY09, the limit on M2 growth of 15.5% would constrain the scope for credit expansion to the private sector. Assuming that the fiscal targets (i.e. revenue and expenditure) of the budget are attained, the above scenario of monetary aggregates would certainly crowd out the private sector if BB intends to adhere to its M2 target (as shown under the PRI scenario in Table 3). However, such a suggestion directly goes against the much needed expansionary fiscal policy stance adopted in the FY10 budget. Would it rather not be appropriate for BB to urge the government to implement its development plan expeditiously and also intensify government efforts to mobilize larger amounts of foreign assistance in the form of budget support to help reduce government borrowing and release more resources for private sector credit expansion?
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During the last twenty five years of planning the central bank of Bangladesh has tried to regulate *The cost of credit * The quantity of credit *The purpose or use of credit etc. The central bank can promote economic development by taking monetary Policy which can make a satisfactory provision for the following Bank rate or Interest rate: By increasing or decreasing of interest rate central bank can make satisfactory provision. Sound Currency System: Monetary Policy helps to economic development which leads to the expansion of market and increasing specialization.
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By means of controlled of credit, the monetary authority ensures growth with stability. By monetary policy central creates special financial institution for economic development in different sectors such as Agriculture finance corporation Industrial finance corporation Export finance corporation etc. One important instrument of Monetary Policy is interest . A rise in interest rates has important effects both direct & indirect upon those who borrow & t those lend & also on the funds to & from the country. Another important instrument which expansion of bank credit.This instrument effective in freezing additional liquidity when banks are acquiring large new resources. promoting
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11. Expansionary policy can be implemented by allowing banks to hold a lower proportion of assets to be held as liquid cash.
12. There is also an urgent need to strengthen accounting practices, to unify and broaden regulations.
14. Improving the quality and timeliness of economic statistics would strengthen policy making. Related Policy taken Under the Monetary Policy:
Bangladesh seeks share from G20 announced bailout fund Bangladesh's trade deficit narrows in July-May period Bangladesh offers tax incentive to lure investment in power Bangladesh's exports growth keeps on plunging Bangladesh reduces Internet bandwidth price by 33 percent Bangladesh's first deep-sea port expected to start operation in 2016. There are both downside and upside risks to the baseline
projections. A prolonged global slump could hold back exports and remittances. Continued shortage of energy supply may further discourage private-sector investment and FDI. On the other hand, private sector investment may jump, if the global recovery is deemed more robust than expected.
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Conclusion
The Metropolitan Chamber of Commerce and Industry (MCCI) has criticized the central banks recently announced monetary policy, saying it will push up inflation and lending rate. The chamber urged the government to ensure that administered prices of fuels, utilities and fertilizers are not increased, as higher prices will aggravate the inflationary situation. The MCCI urged the central bank to consult the leaders of private sector business and industry, and collectively evolve a strategy for controlling inflation and achieving and maintaining the highest attainable output growth in the immediate and medium terms. The chamber recommended that an appropriate inflation control measure should include mechanisms to rein in the governments profligate spending and thus cut budgetary deficits. It should be understood that any increase in government borrowing from the banking system means less credits available for the private sector. Lesser credit to the private sector will have a negative effect on industrialization and growth, The MCCI noted. To help spur investment and sustain economic growth in context global economic downturn, the governor said Bangladesh Bank (BB) will take tougher stance against the commercial banks to compel them ease credit conditions at least for next six months. It should be understood that any increase in government borrowing from the banking system means less credits available for the private sector. Lesser credit to the private sector will have a negative effect on industrialization and growth, The MCCI noted.
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Refference
1. By Dr Salehuddin Ahmed Governor, Bangladesh Bank Fri, 4 Aug 2006, 09:17:00. 2. Bangladesh's half yearly monetary policy designs 6.0 pct GDP growth> Source: Xinhua[08:47 July 20 2009
3. Monetary Policy Statement: A Review
(Ahsan H. Mansur) 9 July, 2009 is the first policy statement by the new Bangladesh Bank Governor Dr. Atiur Rahman.
4. Table 1: Rate of Inflation, End-of-Period (Base :FY96=100) Source:
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