Monetary Policy and Sustainability. The Case of Bangladesh

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Central banks have wide ranging effects on the economy and society as a whole. Their decisions on monetary policy and sustainability are closely intertwined. Nonetheless, the links between the mandates, objectives and instruments of central banks and a broad sustainability agenda are rarely reflected in policy debates. Bringing light to this blind spot is critical.

The impact of monetary policy is shaped by a myriad of factors — many of which are country-specific. A case in point for this is the key role of a country’s financial system in the transmission of policy decisions to the real economy. The structure of the banking sector, the depth of capital markets, as well as the legal and governance frameworks in which financial transactions take place, are central aspects in that context. Understanding these building blocks and how they define policy space is indispensable for a sound analysis of the connections between central bank actions and sustainability.

Against this background, this report focuses on monetary policy and its sustainability impacts in Bangladesh. It lays out areas for exploration and provides initial insights into Bangladesh’s economic development, its sustainability priorities as well as its financial system, and the relationship between these aspects and the country’s monetary policy. It also reviews the mandate, objectives, targets, and instruments of Bangladesh Bank (BB), the country’s central bank, as well as the effectiveness of the transmission channels at its disposal. At the same time, it highlights that knowledge gaps on the topic remain significant. Further analysis will be needed to draw a more complete picture of the country’s monetary policy-sustainability nexus.