This website uses cookies to ensure you have the best experience. Learn more

Monetary Policy And Capital Market Development In Bangladesh

3383 words - 14 pages

Monetary Policy and Capital Market Development in Bangladesh Policy Note: PN 0708
Shubhasish Barua* and Md. Habibour Rahman* Abstract
Bangladesh Bank (BB) adjusted its monetary policy stance during 2005 in order to contain inflationary pressures and facilitate stability in the foreign exchange market. At the end of 2005, interest rates on NSD certificates were also adjusted upward. The latter development, however, raised some concern among different economic agents regarding its possible impact on the country's capital market. In this paper we attempt to closely inspect the evolvement of monetary policy and capital market indicators in recent years and their possible interrelationship to ...view middle of the document...

We focus our analysis on the period, January '02 to December '06. Data on capital market indicators are collected from monthly reviews of Dhaka Stock Exchange (DSE), while interest rates and Treasury bills data are taken from various Bangladesh Bank's sources. In a modern monetary system central banks have control over very short term (overnight) or short term (covering several months) interest rates; long term (1-year or more) interest rates, however, are determined by inflation expectations and real activities.1 Relationship between monetary policy and stock prices can be understood within the stock price valuation model. When central bank raises the interest rates on monetary policy instruments, expected return on alternative assets (other than equity) rise, reducing the present discounted value of future cash flow or price of stocks. The rest of this paper is organized as follows. Section 2 provides a brief discussion on recent changes in monetary policy stance while Section 3 discusses the changes in yields and stock of Government T-bills and NSD certificates. Section 4 provides a review of recent development in the capital market. A parallel analysis is conducted in Section 5 and finally, Section 6 concludes the paper.
The authors are Research Economists of the Policy Analysis Unit at the Research Department of Bangladesh Bank and would like to thank Prof. Syed M. Ahsan, Resident Economic Adviser of Bangladesh Bank for his helpful suggestions and comments. The views expressed in this Note, however, are authors' own and do not necessarily reflect the views of the Bank. 1 The latter requires that there is a well developed secondary market for long term treasury bonds, which is still in its rudimentary stage in Bangladesh.
*

30

T-bill yield of all maturities rose sharply during FY03, but fell sharply at the start of FY04 and remained stable up to March '05, after that these started to rise steadily but gradually.7 Yields on 5 and 10-year BGTBs also show rapid rise since April '05. Following the rise in the yield of T-bills and bonds, growth of outstanding stock of these instruments reached its peak at the end of June '03. However, with the sharp fall in yields the growth of total outstanding stock started to decline rapidly from Sep '03 and fell to around 5.2 percent at the end of June '05. Despite the gradual recovery in the yields, growth of stock of government securities remained negative during FY06, and turned into positive figures only in the first half of FY07.8
Figure 2: Treasury Bills (up to 182 days): Yield and Growth of Stock

<

Source: Monetary Policy Department, Bangladesh Bank Quarterly

Treasury bills with maturity period of 28, 91 and 182 days also rose sharply during FY03, only to drop sharply by the first half of FY04 to their former level. Annual growth of outstanding stock was negative during September '02 to September '04. The weighted average yield on the 28-day and 91-Day T-bill started to increase...

Other Essays Like Monetary Policy and Capital Market Development in Bangladesh

Commodity Exchange Market in Bangladesh Essay

886 words - 4 pages Commodity Exchange Market in Bangladesh Prepared by Kamal Uddin Department of Banking &Insurance Faculty of Business Studies, University of Dhaka Outline  Rationale  Define Commodity & Commodity Exchange Market  How Commodity Exchange Market Works?  Necessity of Commodity Exchange Market in our Economy  Requirement for a Commodity Exchange Market  What Bangladesh Doing?  Recommendation Rationale: Price Volatility in Our Economy

The Apple Company And The Monetary Policy

2662 words - 11 pages holding Treasury securities and agency mortgage-backed securities has an effect on Apple because when the Fed purchases securities it leads to an increase in the money supply. With an increase in the money supply there is more money in the market available for lending which means that Apple can borrow more. Conclusion Overall the monetary policy in the

New Business Development in Bangladesh (Spa)

5951 words - 24 pages , persona spa and so many came in Bangladesh and the growth rate is increasing. Now it is cover 28% growth rate in economics. As we want to expand our business in the hospitability and beauty sector, we have to work hard to create demand among the people of Bangladesh. As our target market is both male and female, we have to create demand to them by providing available supply of latest services. Trends in spa: |Targeting men and women

Sec and the Capital Market

3833 words - 16 pages SEC – Lest We Forget! - 15022010 SEC and the Capital Market – Lest we Forget! February 14, 2010; 1801 hrs, Lagos, Nigeria “Those laws, being forged for universal application, are in perpetual conflict with personal interest, just as personal interest is always in contradiction with the general interest. Good for society, our laws are very bad for the individuals whereof it is composed; for, if they one time protect the individual

Identification of the Mexican Monetary Policy and the Fiscal and Monetary Indicators

1298 words - 6 pages To identify the fiscal and monetary policy tools used by Mexican Presidents since Miguel Aleman and Make clear the fiscal and monetary indicators that define each policy the economic models of that time must be examined; from Miguel Aleman to Felipe Calderon there has been just 3 Economic Models: a) 1940-1964: Import substitution model. (Modelo de sustitución de importaciones) b) 1964-1982: Stabilizing development model. (Modelo de

Development and Market of Food Additives Industry in China

545 words - 3 pages June., 09, 2016, Mumbai, India: Market Reports on China presents the report, on “Development and Market of Food Additives Industry in China”. The industrial statistics indicated food additive industry is in a continuous development trend and going to stay on the trend in future few years. 1. INTRODUCTION Food additive is an important segment of food industry. As modern food industry developed, people have higher quality and safety

Development and Market of Medical Central Oxygen System in China

542 words - 3 pages June., 08, 2016, Mumbai, India: Market Reports on China presents the report, on “Development and Market of Medical Central Oxygen System in China”. China has medical central oxygen system 1,691 units in 2015, YOY 8.59% growth; market size of medical central oxygen system was about ¥250 million, YOY 11.57% growth. 1. INTRODUCTION China has medical central oxygen system 1,691 units in 2015, YOY 8.59% growth; market size of medical central

Deficit Financing Theory and Practice in Bangladesh

5519 words - 23 pages . Over the last ten years, the debt-GDP ratio has stayed above 40 percent that reflects the high debt burden for Bangladesh. [pic] Budget deficit and its financing in Bangladesh, like in many other developing countries, is very important parameters for analyzing monetary and the fiscal effects on the country’s overall economic development. The government is indebted for debt servicing and deficit financing and the rate is rising swiftly. Taking

Overall Monetary Policy of the Government and Its Impact on the Macro Economic Objectives

1202 words - 5 pages Overall Monetary Policy of the Government and its Impact on the Macro Economic Objectives 1. Introduction to the Monetary Policy The Monetary Policy of any country is an important one, as it defines the role and establishment of a central bank within a country and through it attempts to regulate and manage the money supply within an economy in order to achieve specific goals such as Constraining Inflation or Deflation

Formulation of the Intellectual Property Policy for Bangladesh: Challenges and Prospects

2170 words - 9 pages the WTO agreements? VII. How far existing Judicial and Administrative bodies and Staffs are qualified to apply and understand the changes of laws in line with WTO, TRIPS requirements? VIII. What policy interventions might lead to improved performance and favourable toward international economic development? IX. What sectors should be more focused while making an Intellectual Property Policy for Bangladesh? Concluding Remarks: Least

Differences in Promotion and Communication in India and Bangladesh

2497 words - 10 pages market. Bangladesh prefers a more traditional approach and conformist views are still appreciated to some extent. * Both India and Bangladesh are patriarchal countries. But due to Islamic values, the women in Bangladesh are more conservative. But India faces both extremes of this issues. Despite, women in the urban areas being more unrestricted, in the rural areas, India faces traditional and somewhat misogynistic behavior towards women

Related Papers

Bangladesh Capital Market Essay

1231 words - 5 pages speculative trading rather than sound fundamentals, resulting in market volatility  Education of investors, overall development of capital markets through time can address this issue Lack of a Formal Debt Market o Bangladesh does not have established secondary debt market  Markets are unable to provide short term financing solutions to corporations, i.e., commercial paper  Listing of debt instruments from quality issuers and

Fiscal And Monetary Policy Essay

843 words - 4 pages . Negative public opinion of the stimulus bill thanks to the successful PR campaign against it. 3. Fear of the ever-increasing national debt/deficit. Monetary policy has not been hampered by politics or budget deficit fears. They have the ability to begin letting loose the monetary policy arsenal and have begun to take steps in that direction: The Federal Open Market Committee will almost certainly announce another round of quantitative easing at

Federal Reservce And Monetary Policy Essay

930 words - 4 pages . There are three tools of monetary policy that Fed is responsible for controlling, open market operations, the discount rate, and reserve requirements. The purpose of these three tools is to allow the Federal Reserve to control supply and demand of the balances in the depository institutions hold at the Federal Reserve Banks, which alters the federal funds rate. The federal funds rate is the interest rate the depository institutions lend funds at

Central Banks: Fiscal Policy And Monetary Policy

2059 words - 9 pages 1) (A) Analyse both the conventional and unconventional tools used by central banks. (a) Cash related course of action alludes to the measures which the national bank of the country takes in directing the trade and credit supply in for cold hard currency the country with a viewpoint to fulfilling certain specific financial targets. This is the Monetary Policy. Objectives of Monetary Policy:- 1. Regulating Inflation and Deflation