Operations of MFIs, NBFIs to be taken into money supply account

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Sheikh Shahariar Zaman
Bangladesh Bank is planning to estimate the broader M3 money supply that will take into account the deposits and financial transactions of microfinance institutions (MFI) and non-bank financial institutions (NBFI).
The existing M2 broad money supply considers the currency in circulation and deposit in banks to understand the impact of money transaction on inflation.
"We are examining the process of introducing M3 to better understand the relationship between money and inflation," said a central bank official.
"After taking the transactions of banks, NBFIs and MFIs into consideration, the central bank can better explain the behaviour of inflation and take necessary measures," he said.
Most of the transactions in the country are occurred through banks, but MFIs and NBFIs also have a significant market share, he said.
"In rural areas, MFIs play a significant role in mobilising resources and their activities should also affect inflation," he explained.
Citing example, he said inflation of non-food products is relatively high in rural area and food inflation is relatively high in urban areas, he said.
The main problem of calculating M3 is getting authentic data from MFIs, he added.
"The central bank gets authentic data from banks and NBFIs, but it is difficult to ensure the authenticity of MFI data," the official said.
M2 broad money in fiscal 2008-09 increased by 19.17 per cent or Tk 477 billion to Tk 2,965 billion. Out of the total amount, currency in circulation at the end of June was Tk 360 billion and deposit Tk 2,605 billion.
M1 narrow money stood at Tk 664 billion at the end of June, 2009 with currency outside banks stood at Tk 360.49 billion, deposits of financial institutions with Bangladesh Bank at Tk 1.41 billion and demand deposits with deposit money banks at Tk 302.36 billion.
The inflation also started coming down from early this year due to favourable condition in the international market and less vibrant domestic economy, he added.