Evaluating the Effectiveness of Inflation Targeting under Bangladesh's Monetary Policy Framework

This study evaluates the effectiveness of inflation targeting (IT) in Bangladesh’s monetary policy framework since its adoption in 2005. Despite its introduction as a policy measure to stabilize inflation, Bangladesh faces significant challenges, including global commodity price fluctuations, climate risks, and political interference, which may hinder the policy’s effectiveness. This research adopts a qualitative exploratory approach to assess how well inflation targeting has been integrated into Bangladesh Bank's operations and the broader monetary policy framework. By analyzing secondary data from Bangladesh Bank’s reports, Monetary Policy Statements, and international institutions like the World Bank and IMF, the study examines the institutional capacity of Bangladesh Bank, the impact of external shocks, and the role of climate-related vulnerabilities in influencing inflation outcomes. The research specifically investigates whether the inflation targeting framework has succeeded in reducing inflation volatility and maintaining price stability, and if not, why it has struggled in achieving these goals. In addition to reviewing policy documents, the study draws from a combination of theoretical frameworks on inflation targeting, alongside empirical analysis of inflation trends, exchange rates, and global economic factors. The findings highlight key challenges in policy implementation, including weak fiscal-monetary coordination, institutional limitations, and the lack of climate risk integration in financial assessments. This study aims to provide actionable policy recommendations for improving the institutional capacity of Bangladesh Bank, enhancing policy coordination, and adapting the framework to better address the challenges posed by climate change and global economic shifts. The recommendations will contribute to the broader discourse on monetary policy frameworks in emerging economies facing similar economic vulnerabilities.