Dr. Chakravarthi Rangarajan, former Governor of the Reserve Bank of India (RBI), delivering a lecture in Dhaka on January 21, 2018. Photo: BBN

Dhaka, Bangladesh (BBN) – Dr. Chakravarthi Rangarajan, former Governor of the Reserve Bank of India (RBI), said monetary policy is part of overall economic policy that influences the economy through changes in the availability and price of credit and money.

“While monetary policy can have multiple objectives, it needs to steer in a clear direction and prioritization of objectives becomes essential,” Dr. C. Rangarajan also former Chairman of the Economic Advisory Council to the Prime Minister of India said while delivering the First A K N Ahmed Memorial Lecture on Central Banking on Sunday evening.

The Bangladesh Institute of Bank Management (BIBM) organised the lecture on ‘Changing Concerns of Monetary Policy’ in which the country’s eminent economists, bankers and policy makers were attended.

Mr. A K N Ahmed was the second Governor of Bangladesh Bank (BB) and was thus responsible for laying the foundations of the BB. He was Governor at a time when Bangladesh was passing through a difficult time.

The former RBI governor said it has to create a hierarchy of objectives. The mandate of the central bank has become wider.

“In that sense, the contours of monetary policy are changing. This is inevitable with the increasing complexity of the system in which central banks operate.”

However, to deal with other objectives such as financial stability, standard instruments of monetary policy will not be adequate, Dr. Rangarajan noted.

He also said regulation and supervision combined with an appropriate monetary stance will be necessary to maintain financial stability.

“Central banks need to be transparent and explicit with respect to objectives. What is needed is a good combination of rules and discretion. Among the various objectives such as price stability, growth, and financial stability, the dominant objective for central banks particularly in developing economies must be price stability,” the former RBI governor explained.

Having an inflation target helps in this regard, he said, adding that under such a situation, inflation expectations get truly anchored.

“We need to continually enlarge our knowledge and understanding of how the economy functions and how the different participants of the economy react to policy changes. Successful central banks are those which respond to problems with speed, tact and intelligence,” the senior Indian economist noted.

BB Governor Fazle Kabir said it is to be recognized that the central bank of Bangladesh cannot contain inflation and achieve expected growth level unless complemented by Government, regulators of other wings of financial system, banks, and financial institutions.

Simultaneously, one must remember that today’s inflation is both a regional and global phenomenon, according to the BB governor.

“We will continue to gather information from all possible sources to keep an eye on what is happening to inflation, growth and financial stability. In this endeavor, talks of today’s memorial lecture will, of course, be precious inputs for us,” Mr. Kabir noted.

The BB governor presided over the function while Director General of the BIBM Dr. Toufic Ahmad Choudhury delivered the address of welcome.