capital market 2013

8/12/2019 Capital Market 2013

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PRESENTATIONTOPIC :- FUNCTION OF BANGLADESH

AND IS CONDUCT MONETARY POLICY



IntroductionBangladesh Bank (BB) has been working as the central bank sincecountry’s independence. Its prime jobs include issuing of currencymaintaining foreign exchange reserve and providing transaction

facilities of all public monetary matters. BB is also responsible forplanning the government’s monetary policy and implementing it thby. The BB has a governing body comprising of nine members withGovernor as its chief. Apart from the head office in Dhaka, it has nimore branches, of which two in Dhaka and one each in ChittagongRajshahi, Khulna, Bogra, Sylhet, Rangpur and Barisal.



ajor Functions of Bangladesh Bank. Issue of notes and coins: The first and foremost fuentral bank is to issue notes and coins as per needs o

nd requirement of business and commerce.. Government bank: Central bank acts as a banker aconomic adviser of the government. The central banknd maintains government accounts for all governmennd payments.

. Bankers bank: Central bank acts as a bankers bank. As cheduled commercial banks have to maintain SLR (Statutory eserve) 18% with Bangladesh bank. (CRR 5.5% and Bond se3.5%)



4. Lender of the last resort: In case of crisis situation of commercial banks, central banks alender of the last resort by lending against first class securities, bill of exchange etc.5. Reservoir of foreign currency: Central bank maintains foreign currency reserve. For theof control of foreign currency, the following factors are responsible-a. For issuance of notes.b. For payments of liabilities of banks.c. for payment of foreign debts.

6. Clearing house: Central bank acts as a clearing house for settlement of inter-bank receipts a

7. Control currency market: Central bank acts as a guardian of the currency market. For the puformation, control and maintenance of currency market and overall development, central ban

8. Stabilize price level: Fluctuations and frequent changes of price-level affect economic growto making good of the economic imbalance and crisis situations, central bank takes necessary stabilizing the price level.

9.Employment opportunities: Central bank takes initiatives for creating employment opportuof credit control mechanism.



Monetary Policy

Monetary policy is the process by which the government, cemonetary authority of a country controls

a) The supply of money,

b) Availability of money, and

c) Cost of money or rate of interest to attain a set of objectivtowards the growth and stability of the economy.

d) Monetary theory provides insight into how to craft optimapolicy.



Tools of monetary policyMajor instruments of monetary control available with Bangladesbank rate, open market operations, rediscount policy, and staturequirement. The methods of credit control can be classified as

Quantitative/ General Methods Qualitative/ General Methods

01. Bank rate policy 01. Rationing of credit

02. Open market policy 02. Direct action

03. Variation of reserve ratio 03. Regulation of consume

04. Moral persuasion

05. Publicity



Major Monetary Policy Instruments Use byBangladesh Bank

1. Bank rateBank rate, also referred to as the discount rate, is the rate of incentral bank charges on the loans and advances that it extendsbanks and other financial intermediaries. Changes in the bank used by central banks to control the money supply.



Impacts of Bank Rate Changes

BB(Bank rate)

↑ Effects: Increase(cost of credit,unemployment, pricelevel); Decrease(Production,

export, investment).

↓ Effects: Increase(other interestrate, investment,and export);Decrease(leakage of

domestic capital,price level,import).

—

Effects:

An stable situCB(Interest rate)

↑ ↓ —

Borrowers(Advance)

↓ ↑ —

Increase= ↑ ; Decrease= ↓ ; Stable= ‘—’

BB: Bangladesh Bank; CB: Commercial Bank.



2. Open market operationsOpen market operations are the means of implementing monetary

policy by which a central bank controls the short term interest ratethe supply of base money in an economy, and thus indirectly the to

money supply. This involves meeting the demand of base money atarget rate by buying and selling government securities, or otherfinancial instruments. Monetary targets such as inflation, interest ror exchange rates are used to guide this implementation.



3. Statutory Liquidity Ratio(SLR)

The SLR is commonly used to contain inflation and fuel growth, by increasing or decreasing it respectively. Tacts by decreasing or increasing the money supply in the system respectively. In terms of section 33(1) of thCompany Act of 1991, the Statutory Liquidity Requirement (SLR) is the minimum (in percentage of total timliabilities) that a scheduled bank has to maintain in liquid assets with BB. The rate was set at18 percent since 2005. Specialized banks are exempted while banks guided by Islamic laws are required toat the concessional rate of 10 percent.

The objectives of SLR are:

To restrict the expansion of bank credit.

To augment the investment of the banks in Government securities.

To ensure solvency of banks.

Value and Formula

The quantum is specified as some percentage of the total demand and time liabilities ( i.e. the liabilities of thare payable on demand anytime, and those liabilities which are accruing in one months time due to maturity

SLR Rate = Total Demand/Time Liabilities x 100%



4. Cash reserve requirement (CRR)The cash reserve requirement (or required reserve ratio or only reserveis a bank regulation that sets the minimum reserves each bank must hodeposits and notes. BB requests banks to keep five percent of their demliabilities on account at the central bank. Cash in till is not eligible for the



Impacts of SLR & CRR

Cash Reserve Ratio (CRR) and Statutory Liquidity Ra(SLR) for scheduled banks are the other monetary poltools, used sparingly in situations of drastic imbalancemajor shocks.



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capital market 2013

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