Monetary policy is the process by which the monetary authority of a country

controls the supply of money, often targeting an inflation rate or interest rate to
ensure price stability and general trust in the currency.
This Monetary Policy Statement (MPS) is announcing Bangladesh Banks
monetary policy stance for the second half (H2) of the FY16 as the second leg of
its monetary program for the FY16, drawn up in the backdrop of sustained spell of
CPI inflation moderation and output growth momentum upheld by cautious but
explicitly growth supportive stance of monetary and financial policies pursued in
the recent years. As usual, the FY16 monetary program and the monetary policy
stance for the H2 of the FY16 have been chalked up drawing on the experience
with the preceding program and on inputs from face to face and online stakeholder
consultations.
Core Objectives
The main objective of Bangladesh Banks monetary policy is moderation and
stabilization of CPI inflation alongside supporting output and employment growth.
Bangladesh Bank would accordingly emphasize on stabilizing CPI inflation.
Bangladesh Banks monetary and financial policies will continue supporting
inclusive, environmentally sustainable growth; addressing its developmental role in
the longer term risks to macro-financial stability alongside usual business cycle
related short-term ones. The monetary policy stance for the H2 of the FY16,
therefore, will highlight the following points.
stabilizing inflation at moderate level targeted in the national budget and other
macroeconomic policy pronouncements,
supporting the public policy objectives of inclusive, environmentally
sustainable growth, and
maintaining orderliness in transition of domestic currency exchange rate to new
market equilibriums in response to pick up in investment and consumption
driven imports vis--vis trends of export receipts and other inflows. As always,
Bangladesh Bank formulates its monetary policy keeping two things in mind:
monetary policy objectives and global as well as domestic developments.

Highlights of Monetary Policy Statement January-June 2016

Broad money (M2) is projected to grow at 15.0 percent in June 2016 from 14.2
percent in December 2015. M2 is adequate to support the growth and inflation
targets. It has also taken the growth rates of both public and private credit into
account.
Domestic credit is projected to grow at 15.5 percent at the end of the fiscal year
2016 from 10.9 percent in December 2015. Private sector credit is projected to
grow at 14.8 percent in June 2016 from 13.8 percent in December 2015. Public
sector credit is expected to grow at 18.7 percent from a negative number of 1.7
percent in December 2015.
Inflation is expected to land in 6.07 percent in June 2016 from 6.20 percent in
December 2015. Some effects of pay rise in the government sector are likely to
be canceled out by the dampening fuel and commodity prices.
After keeping a static set of policy rates: repo and reverse repo rates for a while,
Bangladesh Bank now decides to lower the repo rate and reverse repo rate by
50 basis points, sending the repo to 6.75 percent and reverse repo to 4.75
percent from the current rates. This move will attempt to dampen other interest
rates in the market and thus will help investment stimulate. Necessary market
alignments warranted this change.
This is an investment stimulating monetary policy that will focus on quality
credit expansion through an inclusivity approach. Selective easing for
agricultural and other productive sectors will draw enhanced attention.
The falling fuel and commodity prices have globally created a low-inflation
environment, paving the way for a considerable reduction in policy rates and
thus signaling the market to raise investment when macro stability is
commendable.
Bangladesh Bank made a strategic shift in loan disbursement policy. All banks
will be encouraged to substantially increase advances for micro, small, and
medium enterprises.
Bangladesh Bank's supervisory vigilance on banking governance will be
straightened further to clamp down on loan delinquencies.
As before, Bangladesh Bank's monetary and financial policy stance remains
grounded on the developmental central banking mandate enshrined in its
charter.

Broad money (M2) growth for FY17 is set at 15.5 percent, based on the FY17
GDP growth and CPI inflation targets of 7.2 and 5.8 percent, respectively.

Domestic credit is projected to grow by 16.4 percent y-o-y in FY17, with credit
to private sector growing by 16.5 percent and credit to the public sector by 15.9
percent.
Downward edging annual average CPI inflation eased to 5.9 percent in June
2016. But its higher nonfood component is under pressure from wage gains of
rural laborers and public employees; offset somewhat by continuing moderate
trends of global commodity prices. This, coupled with proactive management
of market liquidity, is expected to keep FY17 CPI inflation at or close to the 5.8
percent target level.
The declining trends of interest rates in the domestic market will be sustained
by strengthened supervisory oversight on efforts of bringing down
nonperforming loans. Bangladesh Banks policy interest rates (repo, reverse
repo rates) will continue to remain unchanged at the current levels of 6.75 and
4.75 percent, respectively.
Grounded on the growth supportive developmental mandate in its charter,
Bangladesh Banks motivational efforts and supervisory surveillance will
continue to focus on inclusive, productive use of credit; with particular
attention to adequacy of credit flows to agriculture, SMEs, and environmentally
benign green output initiatives.

Banking Guideline by Bangladesh Bank: Bank related guideline by Bangladesh

includes,
Banking Governance
Bangladesh Bank monitors the recent rise of nonperforming loans with concern
and care. While some of these figures are potentially alarming, Bangladesh Bank
has already taken some corrective measures to clamp down on classified loans.
Bangladesh Bank will not be lenient in this regard.
While the cases of the credible borrowers with potential for better businesses will
be reviewed, the central bank will not hesitate to take any stern measures against
the habitual defaulters
and bad borrowers with a track record of persistent delinquencies. The central bank
has taken various steps to improve supervision so financial frauds can be
minimized. Digital technology has been deployed to investigate big financial
transactions and loans in order to stop the repetition of banking irregularities.

New Lending Facilitation Initiatives

To activate banks in utilizing idle liquidity in productive lending to farm and
nonfarm MSMEs, Area Heads of Bangladesh Bank offices have been advised to
engage in field visits with bankers in search for eligible clients still out of financial
inclusion initiatives of banks. To further expand the existing clientele, Bangladesh
Bank also advises all banks to send their officials to explore new lending
opportunities which had not been cultivated yet. These clienteles exploration
initiatives warrant better connectivity between the lenders and the prospective
borrowers who may not typically look creditworthy. These initiatives will
hopefully create more productive credit demand and new employment
opportunities in the economy.
Selective Easing
In the FY16 Bangladesh Bank will continue with the existing stance that is
cautious overall but clearly accommodative in supporting productive pursuits.
Commercial banks have been motivated and supported in extending loans to the
productive and vulnerable sectors at lower interest rates. Green projects will avail
loan at a lower rate and so will export promotion activities. The World Bank has
committed to contribute USD 300 million as credit. The World Bank money will
be for medium to longer term foreign currency financing of manufacturing
projects. Bangladesh Bank will add another USD 200 million which will be
specifically for greening initiatives in the export oriented textiles, apparels, and
leather sectors.