Bangladesh Bank Training Academy Journal

Abstract

This paper attempts to test for the integration among various segments of the financial market in Bangladesh. Both casual observations and statistical analysis presented in this paper indicate that certain components of the money market such as deposit money banks, nonbank financial institutions and government treasury securities market are highly integrated. The market for the instruments of National Saving Directorate is also integrated, albeit with some sort of divergent tendency due to existence of administered interest rate. On the other hand, the interbank call money market and the stock market are not integrated with the rest of segments of the financial system due to their high volatility in the recent past. Deposit rate of the banks is found to be the “reference rate” for the Bangladesh’s financial system. Therefore, efforts must be made to make this rate as much market based as possible since most other rates tend to move in line with the movements of the reference rate. Effetiveness of monetary policy, which generally operates through the short end of the interest rate structure, would also depend on how it impacts the reference rate.