Monetary policy aims and methods have changed over time. Both in developed and developing economies, monetary policies seek to maintain price stability by sustained stable output growth in the face of internal and external shocks that are faced from time to time. In developed economies with production factors at or close to full employment, monetary policies are formulated typically with the output gap (difference between the actual and the longer run potential output) in view; the policy stance is eased to provide stimulus at times of slowdown when actual output lags the longer run potential, and the stance is tightened to slow things down when the economy overheats with actual output running ahead of the sustainable longer run potential. Diagnosing and treating asset price bubbles symptomatic of overheating are major issues of current debate in monetary policy.
For developing economies like Bangladesh with significant underemployment/under exploitation of production factors, stimulating higher growth is imperative for rapid reduction and eventual elimination of endemic poverty, and is therefore an overriding priority. The stimulus provided by monetary policies in accommodating the growth aspirations must not however over step towards macroeconomic imbalance destabilizing and jeopardizing future growth; and the pursuit of monetary policies comprise the continual balancing act of supporting the highest sustainable output growth while adjusting smoothly to internal and external shocks that the economy encounter from time to time. The primary objective of the Monetary Policy of Bangladesh is to outline the formulation and implementation of monetary policy of the Bangladesh Bank (BB), and to convey its assessment of the recent and the expected monetary and inflation developments to the stakeholders and the public at large The Bangladesh Bank Order of 1972 outlines the main objectives of monetary policy in Bangladesh, which comprises—
a) To achieve the price stability
b) To regulate currency and reserves
c) To promote and maintain a high level of production, employment and real income, and economic growth, since independence BB operated under a variety of pegged exchange rate systems amid capital controls
d) To manage the monetary and credit system
e) To maintain the par value of domestic currency
f) To promote growth and development of the country's productive resources in the best national interest Although the long term focus of monetary policy in Bangladesh is on growth with stability, the short term objectives are determined