Following the Monetary Conditions Index (MCI), Bangladesh's monetary policy ismoving through continuous balancing between interest rate and exchange rate to address theGDP and inflation in a pragmatic manner. Considering the diagnostic tool, the recentoversubscription in government treasury bills and bonds of different tenure reveals that althoughbanks liquidity condition is tight with higher call money rate but due to magnetizing Currency incirculation (CIC)in the government securities auction the individuals’ noncompetitive bid orweighted average rate (WAR) is crucial. As a result, Bangladesh Bank (BB) has recentlyincreased the policy rate in the interest rate targeting monetary policy regime, depending on theoptimum CIC. At the same time, to mitigate the business loss arising from higher lending ratesrelated to policy rate, the government is trying to compensate through judicious devaluation ofTaka, enhancing export and wage earners remittances against import and other current accountoutflow of balance of payment (BOP), for instance, under crawling peg system. Underlying thementioned root cause the theoretical money demand function and monetary and fiscal policy,different school of thought on inflation-output adjustment considering demand and supply,sectoral interactions of Bangladesh economy, monetary and conventional financial sector recentissues and Islamic banking in brief in terms of financial stability through monetary policy areshaded in this paper. To ensure financial stability with lower inflation, considering the currentlower foreign exchange reserves policy mix, the government's borrowing from the bankingsystem for deficit budget financing needs to be lowered as expected revenue collection is not enough.