Assignment on:

Comparative Analysis of the Variables of Monetary Policy

Course name: Macroeconomics
Course code: ALD 2204
The main purpose of this assignment is to conduct a comparative analysis of the variables of
monetary policy, from Fiscal year 2010 to Fiscal year 2019 (H1). We have compared 8 variables
from these 10 year’s monetary policies, which are given below:

Money supply growth

Money Supply Growth

20.00%
18%
18.00%

16.00%
15% 16%
14%
14.00%
12%
12.00% 11%
11%
10%
10.00%

8.00%

6.00%

4.00%

2.00%

0.00%
2010-2011 2011-2012 2012-2013 2013-2014 2014-2015 2015-2016 2016-2017 2017-2018

Interpretation: At the beginning of fiscal year 2010 the supply of money is higher than the
previous year because the inflation rate was almost 2 digit (10 percent July 2009). Market has a
lot of money to circulate but the second quarter of FY 2009 the inflation rate is less than previous
quarter because agriculture growth increased and money supply decreased. Money supply
decreased means the inflation rate is going down. So these money supply growth is changed due
to some economic variables. In FY11 Money supply growth of 15.2% can be regarded rather
conservative in the context of expanded monetization in the economy; this was also significantly
lower than last year's growth rate of 22.4 per cent. In fact, the average growth rate of broad
money supply during the last five years was 19.1 per cent. Similarly, the targets for the
components of money supply were also found to diverge widely when compared to the actual
outcomes. This once again puts into question the approach of targeting the monetary aggregates
pursued by the Central Bank.
In FY12, money growth was higher than that of the previous year. The foreign asset based
monetary expansion during global financial crisis affected the whole scenario. This is why the
increase has occurred. Monetary targets for FY12 are on track establishing the credibility of the
stance taken in the previous Monetary Policy Statement. In November 2011, reserve money
growth and broad money growth (M2), on a year-on-year basis, were 15.4% and 17.7%
respectively, well below the 16% and 18.5% targets set out in the July MPS. This stance was
achieved through active liquidity management (repo and reverse repo operations) which ensured
positive real interest rates in the money market, raising repo rates by 100 basis points in FY12
and lifting all rate caps other than agriculture and pre-shipment export credit.
In June2012, broad money (M2), on a year‐on‐year basis, was an estimated 17.2% and growth of
Net Domestic Assets was 20.1%, compared to the targets set in the January MPS at 17% and
21.9% respectively. The monetary stance for H1 FY13 takes these recent economic
developments into account and targets a monetary growth path which will further curb
inflationary pressures, while ensuring adequate private sector credit to stimulate inclusive
growth. The last MPS also aimed to contain reserve money growth to 15.5% and broad money
growth to 17.2% by December 2013. Latest data for H2FY14 shows that reserve money growth
and growth of net domestic assets of Bangladesh Bank remained within program ceilings. Broad
money growth of 15.2% in May 2014 undershot program ceilings due both to lower public and
private sector borrowing from the banking sector.
According to the 1st half of fiscal year 2015 projection reserve money will grow to 15.9 percent
and broad money will grow to 16.5 percent to maintain GDP growth rate and control the
expected inflation rate. To attain this projection till December expected growth of reserve money
and broad money is 15.5 percent and 16.0. The actual growth of reserve money and broad money
at first half 2015 was 14.3 percent and 12.8 percent November 2014. At the end of fiscal year
2015 the actual growth of reserve money and broad money was 14.3 percent and 12.4 percent. In
the H1 of fiscal year 2016 money supply is expected to grow where reserve money will grow at
16 percent and broad money (m2) is grow at 15.6 percent. The reason for the growth of money
supply is to support the growth and inflation targets, as well as to increase the growth rate of
both public and private credit into account. In 2016 it is projected that broad money will grow at
15.6 percent and reserve money will grow at 16 percent. To achieve this target the expected
broad money and reserve money at the end of half year was 15 & 16.5 percent but actual supply
of broad money and reserve money was 13.8 & 14.4 percent. Both nonfood and core inflation
was rising at a high rate that’s why broad money and reserve money supply has been reduced. To
control the inflation and growth rate in the 2nd half of fiscal year 2016 expected broad money
supply was 15 percent and at the end period may 2016 we can see that the actual supply of broad
money was 14 percent and reserve money was 20.9 percent. It is expected that till December
2016 broad money supply will grow at 14.8 percent and reserve money at 11.0 percent at the end
of first half of fiscal year 2017. Money supply growth in 2 nd half of FY17 is 15.50% which will
help support the support the GDP growth target of 7.20% and inflation ceiling of 5.80%. The
monetary policy of first half of FY18 has set the growth rate for money supply ceiling at 13.90%.
This rate is expected to help achieve the favorable inflation performance in FY18. In the 2 nd half
of FY18 the money supply growth is projected to be 10.7%, because during H1 FY18 most of
the key monetary aggregates remained broadly in line with the programmed paths outlined in
Monetary Policy Statement for FY18. The FY19 monetary program sets the growth ceiling of
money supply at 12% which is adequate to support growth while maintaining price stability.
Inflationary risk concerns remained largely under control because of this growth rate.
 Inflation Rate

Inflation Rate
12.00%
10.70%
10.00%

8.02%
8.00% 7.54%

6.12% 6.40%
5.92% 5.70%
5.50%
6.00% 5.30%

4.00%

2.00%

0.00%
2009-2010 2010-2011 2011-2012 2012-2013 2013-2014 2014-2015 2015-2016 2016-2017 2017-2018

Interpretation: FY 09 began with double digit (10.0 percent in July 08) annual average CPI
inflation, which came down to single digit levels by the second quarter aided by good domestic
agricultural output and the collapse of global commodity price bubble. CPI inflation continued
declining in H2 FY 09 (7.3 percent in May 09), and is likely to have been about 7.0 percent in
June 09.It occurred because of some agriculture and other economic variables. In FY10, the
inflation rate has a declining tread of twelve months average CPI inflation from H2 FY09;
coming down to 5.11 percent in October09,cfrom 6.6 percent at the beginning of FY10. The
percentage was fluctuating at close rate. FY 2010(June) ended within the 5.5% inflation rate.
In year 2010 domestic annual CPI inflation trends and global commodity price trends the
domestic inflation crept to 6.51%.This was happened because of price hike and of food and non-
food commodities in both international and domestic market. The inflation of 7.54% is a result of
the money supply in the FY11. As usual, the inflation has increased because of more money in
the market. However, it hasn’t gone up that much. Against the expected moderation of domestic
food CPI inflation in H1 FY12, non-food CPI inflation may have some increases if the
subsidized user prices of gas, electricity and petroleum are revised upward to relieve
government’s mounting budgetary burden. Given these realities, even as BB remains proactive in
curtailing excess demand from undue monetary expansion, attaining the targeted decline of CPI
inflation to 7.5% in FY12 from the end FY11 level of 8.8% may prove challenging. Inflation,
averaging 10.7% in December 2011, is higher than the 7.5% average projected in the 2011/12
Budget speech. This is due to a number of factors including the lagged transmission of higher
global food prices, high domestic credit growth in FY2011 and recent upward adjustments in
energy and petroleum prices. In recent months overall (point to point) inflation has declined from
a peak of 11.97% in September to 10.63% in December.
In the FY13 the inflation rate has decreased to good amount and has met the target. Based on
current trends the FY13 CPI average inflation target of 7.5% announced in the FY13 Budget
appears achievable, though risks remain. Average inflation rose from 6.99% to 7.53% during
H1FY14 driven by these higher food prices.
The expected inflation rate for fiscal year 2015 was 6.5%. To attain this expected inflation rate
reserved money and broad money is expected to grow at 15.9 percent and 16.5 percent. Till May
2014 food inflation rate was 9.09 percent but in December 2014 it fall down to 5.86 percent. And
the reason behind this fall of food inflation was bumper production of rice in November to
December 2014. On the other hand nonfood inflation rose from 5.45 percent to 6.48 percent in
December 2014 and it’s mainly increase in July-September 2014 because of Eid and Durga puja
celebration. At the end of fiscal year 2015 inflation rate become 6.4 percent which was very
close to the expected inflation rate. The main reason behind not being able to achieve the
expected inflation rate was increase of food inflation. According to some studies it is thought that
a range of 4 to 6 percent inflation as moderate and moderate inflation support respectable
growth. The targeted inflation rate for the H1 of fiscal year 2016 was 6.2 percent.
For the last couple of years average CPI inflation in Bangladesh has shown a slowly declining
trend. Inflation which was 7.28 percent in July 2014, fall down to 6.19 percent in December
2015 & 5.92 percent in June 2016.which was quiet good. The main reason behind the decrease in
inflation was decrease in fuel and commodity price. Average inflation fall down basically for the
fall of food inflation which was very high 8.55 percent till July 2014 fall down to 6.05 percent in
December 2015 and 4.90 percent in June 2016. Though food inflation and fuel price decrease
still core inflation was rising from 6.28 percent in July to 6.79 percent in December 2015 and
8.04 percent in June 2016. The only reason behind the increase of core inflation was nonfood
inflation, as core inflation exclude both food and fuel components which was decreasing and it
includes nonfood inflation which was increasing at a high rate 5.41 percent in July 2014 to 6.41
percent in December 2015 and 7.47 percent in June 2016. Inflation which was 7.28 percent in
July 2014, gradually fall to 5.92 percent in June 2016. The inflation rate is now in a safe zone.
According to Data and Studies it is suggested that 6 percent inflation along with one standard
deviation is a growth maximizing threshold. Keeping that on mind it is expected to keep Fiscal
year 2017 CPI inflation at or close to the 5.8 percent target level. The H2 of Fiscal Year 2017’s
monetary programs aim to keep average inflation below 5.8% by taking into account the recent
economic and financial sector developments. By benefitting from both favorable food and non-
food inflation dynamics CPI inflation has been coming down to 5.03% and 5.50% in average by
December, 2016 well which is within the FY17 ceiling. But from the monetary policy we can see
that the non-food inflation has declined to 4.50% due to favorable production and global
commodity prices. This inflation dynamic in the first half of FY17 has caused by the conflux of
factors like domestic output growth supported by inclusive financing, continuing moderation in
global commodity prices, and BB’s growth supportive yet cautious monetary stance. According
to the econometric estimate the average annual inflation for H1 FY18 is projected to be around
5.5-5.9%. It is expected that the domestic inflation dynamics, food price developments and
tapering base effects, some price pressures may emerge during FY18 and these facts will need to
be monitored and handled carefully. In addition, subdued global inflation and favorable regional
inflation may ease the emerging domestic inflationary pressure at some point. After declining
through FY17, average inflation has been gradually up in recent months, reaching 5.70%.
Bangladesh Bank expected this rate to be around 5.70%-6% in June 2018 due to no further
domestic or external shocks and relatively favorable global inflation outcome.
The average inflation rate has been broadly affected by the food inflation dynamics driven by the
food-related domestic shocks and higher global commodity prices during FY19. Bangladesh
Bank has set the inflation rate 5.80% for the FY19, assuming no large weather-related shocks
amid rising global inflation.

Interest rate

Interest Rate
14.00%
11.82%
12.00%
10.57%
9.94% 9.56%
10.00%
7.75% 7.25%
8.00%
6.70% 6.90%
6.00%
4.00%
2.00%
0.00%
2010-2011 2011-2012 2012-2013 2013-2014 2014-2015 2015-2016 2016-2017 2017-2018

Interpretation: In first half of FY 2010 inter-bank interest rate was too much low at 0.10
percent. Yields on bonds, treasury bills and interest rate on deposits was declined. In FY11 high
lending rate remains one of the major impediments to investment in Bangladesh. In H1 of FY12,
Bangladesh Bank slightly lowered the interest rate as the money supply and the inflation went
up. After that in H2 of FY12, the weighted average lending rates have gone up on average by
1.6% points. Bangladesh is closely monitoring spreads so that they remain in low single digits
for all sectors, except SME and consumer credit.
In FY13, Call money rates have declined and interest rate spreads have fallen marginally but
need to decline further especially for foreign banks. At the retail level both deposit and lending
rates rose. The lending rate for FY13 is 7.75%. In FY14, Bangladesh Bank slightly lowered the
interest rate as the money supply and the inflation went up and the interest rate was 7.25%.
Bangladesh bank urge the commercial bank to reduce the lending rate which does not come
down along with inflation rate. Inflation has dropped by 5 percentage point since 2011 but
lending rate dropped by only 1 percent points since than banks earn high real rate of interest and
investment become more expansive. For the fiscal year 2015 Bangladesh bank is keeping the
weighted average deposit rate decrease to 6.99 percent in May 2015 from 7.71 percent July 2014.
Average lending rate fall from 12.84 percent in July 2014 to 11.82 percent in May 2015 and call
money also fall to 5.79 percent in June 2015 from 8.75 percent in January.
The fall in interest rate is not significant enough to warrant a downshift of policy rate
immediately in H1 of FY16. The new year 2016 create new era of lower interest rate the reason
behind that was to compete against the private bank and for that reason state owned bank have
recently decided to slash lending rate by 1.5 to 2.0 percentage. Domestic lending rate also facing
downwards pressure because of the low interest rate option of foreign borrowing by industrials.
As a result average lending rate fall from 12.84 percent in July 2014 to 10.57 percent in May
2016.
During June-November 2016, the average (weighted) lending rate has decreased by 45 basis
point to 9.94%, on the other hand deposit rates have declined by 45 and 25 basis points to 5.29
percent. The decrease in these interest rates affect favorable inflation performance, ample
liquidity and an increase in the banking system. From Monetary Policy for FY18 we have found
that deposit rate and lending rate rose to 4.84% and 9.56% respectively, due to rising credit
demand amid shifting liquidity conditions. The deposit rate and lending rate for FY19 is set at
5.52% and 9.96% respectively. The gap between deposit and NSC rates increased upward
pressures on the deposit rates as liquidity conditions tightened from negative NFA growth and
the divergence between credit and deposit growth. Faster growth in deposit rate tightened spread
by 27 basis point in FY18. In addition tightening global financial conditions are likely to
continue generating additional pressures on interest rate in the emerging markets like
Bangladesh.
GDP Growth Rate

GDP Growth Rate

9.00%
8.00% 7.65%
7.11% 7.20%
7.00% 6.50% 6.30% 6.55% 6.55%
5.90% 6.01%
6.00%
5.00%
4.00%
3.00%
2.00%
1.00%
0.00%
2009-2010 2010-2011 2011-2012 2012-2013 2013-2014 2014-2015 2015-2016 2016-2017 2017-2018

Interpretation: Bangladesh bank estimated 5.9 percent real GDP growth in FY 09 following the
6.2 percent growth of FY 08.The GDP growth rate was decreased because of some issues. That
FY one of the major issues was political instability for that reason domestic and international
investors had no intend to invest money in that uncertain condition. BB’s MPS for H1 FY10
announced in July 2009 projected real GDP growth of 5.5-6.0 percent for FY10, based on the
BBS estimate of 5.9 percent growth in FY 09, assuming that the then incipient recovery of world
economy from the downturn triggered by the global financial crisis will hold pace or strengthen
further. Government’s provisional estimate for overall FY10 GDP growth is 6.09 percent,
against preceding year’s 5.88 percent. In the H2 of FY11, the estimation was 6.7% at the start
but eventually it stood at 6.5%, which more or less is considered as a success.
In the H2 of FY12, the GDP growth of 6.6% is very much close to the expectation of 6.7%. The
domestic economic situation therefore looks a bit more stable on paper at least. The expenditure
side rising subsidy costs-estimated at 3.4% of GDP (or 19.1% of total spending) in FY12
compared with 1.3% of GDP (or 8.8% of total spending) in FY10 -are intensifying the
government’s domestic financing requirement, as state owned enterprises providing fuel and
electricity continue to make large losses, despite recent fuel and electricity price increases.
Government has set a GDP growth target of 7.2% for FY13. The expected GDP growth rate for
the fiscal year 2015 was 6.2-6.5% on the basis of money supply and inflation rate. Till fiscal year
2014 GDP was 6.06 percent and at the end of fiscal year 2015 GDP increase to 6.55 percent. The
reason behind the increase of GDP is the political stability, implementation of mega projects.
GPD also increase because of the increase in private credit 10.8 percent in FY2013 to 13.2
percent in FY2015. In the first half of fiscal year 2016 the expected real GDP growth rate is 7
percent. And for attaining this percent urgent redressing of infrastructural and administrative
deficiencies impeding investment, alongside persevering political calm and stability. For the
fiscal year 2016 the expected private credit growth is 15.0 percent which will be able to support
the 7 percent GDP growth. For the expected GDP rate of 7%, private credit should grow 15.0
percent. The private credit growth in fiscal year 2016 was 16.4 percent which was more than the
expected credit growth and that’s why GDP growth rate increase into 7.113 percent. The another
most important reason in the growth of GDP was the rise in construction growth is attributable to
progress in implementation of mega projects and increased growth in housing construction,
stimulated, among others by recovery in remittance. This become possible for political stability.
For the past few years GDP of Bangladesh is increasing at a good rate, reason behind that was
the implementation of mega projects. On that basis the expected GDP growth rate is 7.2 percent
for the H1 of FY17. Using ARMA model and one on sector wise 10 years average growth show
a GDP range from 7.1 to 7.3 percent forecasted by Bangladesh bank. According to the
Bangladesh Bank’s econometric model estimate and sectoral analysis GDP growth in H2 of
FY17 is 7.20%. Bangladesh Bank’s FY18 monetary program seeks to attain 7.4% GDP growth
by the government while also supporting 12-month average CPI inflation. GDP growth rate for
the H2 of FY 18 is 7.65% due to continued political stability, which is up from 7.28% in FY17,
well above the projected 4.90% GDP growth for emerging market and developing economies in
2018. In FY19, there was sector-based growth trends and economic estimates, Bangladesh Bank
has projected the GDP growth at 7.80%. This rate will be constant, if only there is a continuation
of domestic political calm and no further escalation of global trade-related conflicts. Otherwise,
Bangladesh Bank will update forecasts on regular basis during the course of the year and
accordingly monetary program to accommodate any significant changes.
 Private Sector Credit

Private Credit Growth

18.00%
17% 17%
16% 16% 16% 17%
16.00%
14.00% 13% 13% 13%
12.00%
10.00%
8.00%
6.00%
4.00%
2.00%
0.00%
2009-2010 2010-2011 2011-2012 2012-2013 2013-2014 2014-2015 2015-2016 2016-2017 2017-2018

Interpretation: In December 2009 the private sector growth was 19.2% and June-2010 growth
was estimated for 21.1%.It slightly increased. Private sector credit growth was recorded 16%,
which eventually met the estimation. Credit to private sector has been expanding much in excess
of what may be reasonably needed for attaining the targeted real and nominal GDP growth.
Due to sharp decline in government’s net external borrowings and to the private sector’s
tendency of leaning heavily on domestic savings for financing investments rather than at least
partly accessing foreign debt or equity for this purpose in FY12. This stance was achieved
through active liquidity management (repo and reverse repo operations) which ensured positive
real interest rates in the money market, raising repo rates by 100 basis points in FY12 and lifting
all rate caps other than agriculture and pre-shipment export credit. This stance has still left room
for adequate private sector credit growth. The private sector credit growth for the FY13 and
FY14 were 12.71% and 13.10% respectively.
Private sector credit growth was expected for fiscal year 2015 15.5 percent. Till end of the first
half of fiscal year 2015 it is expected that private sector credit growth rise to 14.0 percent. In
November 2014 the private sector credit growth rise to 12.7 percent which was below the
expected rate. The reason behind this was Bangladeshi corporates are now allow to take foreign
source of financing. Also the political uncertainty and infrastructural bottlenecks are holding the
back of private investment. The achieved private sector credit growth at the end of fiscal year
2015 was 13.2 percent. In fiscal year 2016 the expected private sector credit growth is 15 percent
which was 13.2 percent in fiscal year 2015 and public sector expected credit growth is 23.7
percent from the negative figure of 2.6 percent in last fiscal year. On that basis in 2 nd half of
fiscal year 2016 Bangladesh bank again project public sector growth that is 18.7 percent but at
the end of fiscal year 2016 we can see that public sector growth still remain negative figure and
that is 2.4 percent. Targeted private credit growth for the fiscal year 2017 is 16.5 percent which
will be able to support output growth ranging from 7.1 to 7.3 percent which nicely fit in to attain
7.2 percent output growth target. In the second half of FY17, private sector credit growth
exceeded 15%, a three-year high but within the FY17 ceiling of 16.50%.
The monetary policy for H1 of FY18 sets the private credit growth ceiling at 16.30% which
supports private investment and consumption, while a sharp slowdown in remittance weakened
the tailwind Bangladesh has enjoyed in recent year. The credit to private sector is projected to be
16.80% for FY18 against previous projection of 16.30% in H2 of FY18. Continuing negative
trend of government’s bank borrowing is projected to leave a room for this higher rate of private
sector credit. Sharp above-trend upturns in imports and in credit to private sector appear to
indicate a much-awaited robust pickup in investment and output activities, supported by progress
in addressing infrastructural deficiencies, robust domestic demand and a broad-based pickup in
global output and trade growth. The FY19 monetary program sets growth ceiling of private
credit at 16.80%, which is adequate to support growth while maintaining price stability.

Domestic Sector Credit

Domestic Credit Growth

20.00%
17.90%
18.00%
16.40%
15.60%
16.00% 15.50%
14.50%
14.00%
12.50%
12.00% 10.90%
10.10%
10.00%

8.00% 7.00%
6.00%

4.00%

2.00%

0.00%
2009-2010 2010-2011 2011-2012 2012-2013 2013-2014 2014-2015 2015-2016 2016-2017 2017-2018

Interpretation: First half of the fiscal year 2009-10 the domestic credit growth were 12.41% in
September, 12.59% in October, 11.84% in November. In 2010 the domestic credit growth was
ended with the 15.60% which was constantly increased to reach this rate. The 17.9% growth
target for domestic credit in the monetary program for FY11 has room for accommodating the
0.5% increase in inflation projection; the programmed M2 and domestic credit growth targets for
FY11 will therefore be retained unchanged in H2 FY11. Domestic growth was projected at 7% in
the FY12 Budget assuming stable domestic and global economic conditions. However due to the
fact that in recent months global economic conditions have significantly deteriorated
Bangladesh’s export and remittance growth may slow down, as is the case with other countries.
Moreover weak aid inflows, slowing imports and moderating credit growth will limit aggregate
demand. As such BB is projecting growth in the range of 6.5-7.0%. The main reason behind
lower number appears to a slowing agricultural growth which according to these provisional
numbers has slowed from 5.13% in to 2.53% in FY12. This is largely due to the base effect of
two consecutive years of record growth but also they could be revised upwards once the ‘Boro’
rice crop is accounted for. Yet industrial growth, which is the sector most affected by access to
timely credit, is estimated at 9.47% in FY12, higher than the 8.20% in FY11. An important
driver of this higher industrial growth is faster growth of small scale industries which increased
from 5.84% in FY 11 to an estimated 7.18% in FY12. Domestic credit growth rate for FY14 was
10.90%.
Domestic credit growth is expected to grow at 17.4 percent at the end of fiscal year 2015. To
achieve the expected domestic growth rate the expected domestic growth rate for the first half of
fiscal year 2015 was 13.4 percent. Almost end of first half of fiscal year 2015 domestic credit
growth rise to 11.3 percent November 2014. For the first ureter of fiscal year 2015 domestic
credit growth was rising because of the increase in private sector credit growth but at the end of
1st half of fiscal year 2015 its stop increasing and face fall down for the decrease trend of public
sector credit growth. The expected domestic credit growth at the end of fiscal year 2016 is
projected to grow at 16.5 percent. This 16.5 percent rise of domestic growth can be decomposed
between public and private sector credit as taka 1488 billion and taka 6608 billion. For the
achievement of expected domestic credit rate till December 2015 expected domestic credit was
projected 13.1 percent but till November 2015 only 10.3 percent was achieved. After seeing the
first half result of fiscal year 2016, some adjustment is made where the expected domestic credit
for fiscal year 2016 was 15.5 percent. But at the end of second half of fiscal year 2016 domestic
growth rate was13.2 percent. In fiscal year 2017 the expected domestic credit growth is 16.4
percent. For achieving the expected domestic credit growth it is expected that domestic credit
growth will increase 15.9 percent till December 2016 and at the end of fiscal year June 2017 it
will reach to the targeted domestic credit growth 16.4 percent In H2 of FY17 domestic demand-
driven economic activity remains relatively buoyant, as indicated by credit growth, industrial
activity, and import trends. Despite some moderation, garment exports growth has held up well
relative to peers. Bangladesh Bank has set the domestic Credit to growth 16.4% for the H2 of
FY17.
For the H1 of FY18 Bangladesh Bank has set the Domestic credit growth ceiling at 14.50, which
is a level consistent with the growth and inflation objectives. For the H2 of FY18 domestic credit
growth rate remains 14.50% which is same as H1 of FY18’s domestic credit growth, because
during H1 FY18 most of the key monetary aggregates remained broadly in line with the
programmed paths. This outcome helped moderate inflationary pressures. To support investment
and growth with a view to keeping a lid on inflationary pressures in FY19, domestic credit
growth is programmed to increase by 15.90%. This outcome will partly reflect the negative
growth of government borrowing from the banking system. It afforded additional space for
private sector credit growth while remaining within the broader monetary program parameters.
 Repo Rate

Repo Rate
8.00%
7.25% 7.25% 7.25%
7.00% 6.75% 6.75% 6.75%
6.10%
6.00% 5.50%

5.00%
4.50%

4.00%

3.00%

2.00%

1.00%

0.00%
2009-2010 2010-2011 2011-2012 2012-2013 2013-2014 2014-2015 2015-2016 2016-2017 2017-2018

Interpretation: Bangladesh Bank raised up the repo interest rate by 25 basis points to nudge
down the credit growth in FY2009. Credit demand eased in FY09 as the import growth
decreased and the price of commodities decreased. In FY 2010 Bangladesh bank resumed
reverse repo auctions after lowering the repo and reverse repo rates by 200 basis points
respectively to 4.5 and 2.5 percent respectively. This is due to high growth in foreign assets at
the expense of growth in domestic assets helped monetary development. In October 09,
Bangladesh Bank resumed reverse repo auctions after lowering the repo by 200 basis points
respectively to 4.5 percent, levels closer to the then current call money rates. In FY11 Repo rate
was one of the most frequently used instruments to control money supply and credit by
Bangladesh Bank; in FY11 the repo rate was 5.50%. In the H1 of FY12, government increased
the repo in four steps totaling 225basisi points in FY11, besides raising CRR for banks by 50
basis points. They also had to keep injecting substantial Taka and USD liquidity. The level of
borrowing from the banking system in the first five months of FY12 is higher than what was
expected when the Budget was prepared. This reflects significant shortfalls in foreign borrowing,
higher-than-expected subsidy payments and low levels of non-bank borrowing. The last factor
can be enhanced if upward revisions to the interest rates on National Savings Schemes are made.
In FY14 Bangladesh has increased the repo rate remained same as FY13’s repo rate. This repo
rate of 7.25% is being unchanged from FY13 to FY15. But we can see a slight change from
FY16 in repo rate. In FY16 the repo rate was 6.75%, which happens to be consistent from FY16
to FY18. This change took place due to the commendable macro stability and political calm it is
high time to stimulate investment and improve condition in market confidence. Another reason is
due to export and remittance slowdown limiting monetary expansion through a lower NFA
growth projection. To moderate the tightening of liquidity conditions, Bangladesh Bank
subsequently adopted a package of measures which includes the reduction of repo rate by 75
basis points to 6%, for FY19. This measure will subsequently help ease the liquidity crunch.
 Reverse Repo Rate

Reverse Repo Rate

7.00%

6.00%
5.75%
5.25% 5.25%
5.00%
4.75% 4.75% 4.75%
4.00% 3.90%
3.50%
3.00%
2.50%
2.00%

1.00%

0.00%
2009-2010 2010-2011 2011-2012 2012-2013 2013-2014 2014-2015 2015-2016 2016-2017 2017-2018

Interpretation: Bangladesh Bank raised up the reverse repo interest rate by 25 basis points to
nudge down the credit growth in FY2009. In FY10 reverse repo rate was at 2.50%. In FY11
reverse repo rate was one of the most frequently used instruments to control money supply and
credit by Bangladesh Bank; in FY11 the reverse repo rate was 3.50%. In the H1 of FY12,
government increased the repo and reverse repo rates in four steps totaling 225basisi points in
FY11, besides raising CRR for banks by 50 basis points. They also had to keep injecting
substantial Taka and USD liquidity. The level of borrowing from the banking system in the first
five months of FY12 is higher than what was expected when the Budget was prepared. This
reflects significant shortfalls in foreign borrowing, higher-than-expected subsidy payments and
low levels of non-bank borrowing. The last factor can be enhanced if upward revisions to the
interest rates on National Savings Schemes are made. In FY13 and F14 the reverse repo rates
were at 3.90% and 5.75%, respectively. For the fiscal year 2015 Bangladesh bank is keeping the
policy of reverse repo rate of 5.25%. The fall in interest rate is not significant enough to warrant
a downshift of policy rate immediately in the H1 of FY16. That’s why reverse repo rate will
remain unchanged at 5.25 percent. But if the headline general inflation and core CPI inflation
take a sustained declining trend than easing will be considered in policy interest rate. For the H2
of fiscal year 2016 it is expected that policy interest rate (repo and reverse repo) will remain
unchanged. But for the commendable macro stability and political calm it is high time to
stimulate investment and improve condition in market confidence. That’s why reverse repo rate
have been lowered by 50 basis point to reach 4.75 percent. So we can see from the graph that it
remains constant at 4.75% both in Fiscal Year 2017 and 2018 to support growth while mitigating
inflation risks. From the monetary policy provided by Bangladesh Bank we understand that the
reason behind this constant rate is due to export and remittance slowdown limiting monetary
expansion through a lower NFA growth projection. Even for FY19, Bangladesh Bank has
decided to maintain the reverse repo rate at its current level which is 4.75%, by balancing the
inflation and output risk.