Abstract:
Abstract: Monetary accounts identity is taken into consideration to derive the excess
reserves (ER) of deposit money banks (DMBs). DMBs Taka balance with Bangladesh
Bank (BB) in reserve money (RM) minus cash reserve requirement (CRR) results ER
in the central banks account. The shortfall of ER can also happen. ER is affected by
autonomous and policy factors. Autonomous factor includes net foreign assets (NFA),
net position of government and currency in circulation (CIC). The ER is managed
through open market operations (OMOs), which is the policy factor. Without BBs
intervention four days ER forecast is calculated in this paper to maintain the orderly
situation in interest rate, exchange rate, inflation and output. Rise in call money
appreciates the Taka against foreign currency and help to stiffen the inflation.
Management of ER or Taka liquidity including sterilisation using BB Bill and reverse
repo is crucial when NFA of RM increases. Using of principal asset mortgaging
government securities to get liquidity through repo assured liquidity support facility
(ALSF) is also important element for optimum ER management in Bangladesh. This
paper addresses the issues relating to monetary and economic analysis, the two
pillars of monetary policy for effective management of money multiplier (mm) and
forecasting of ER. Quantity theory of money is analyzed to understand the money
demand and supply relating to ER. The stability in mm is used as underlying factor to
make relation among ER, interest rate, exchange rate, inflation and output.
