This paper analyses the monetary transmission mechanism of Bangladesh with special emphasis on the credit channel for the period June 2003 to February 2014. The starting point of the study period is determined by the initiation of two policy events: the adoption of a floating (managed) exchange rate regime and the introduction of market-based monetary policy instruments by the Bangladesh Bank. The study provides a unified approach to the monetary policy literature and the Exchange Rate Pass Through literature while identifying the Structural VAR model. The study finds that monetary policy affects the domestic price level significantly and the bank credit channel plays a nontrivial role in the monetary transmission. Second, a credit shock can be inflationary and the central bank plays a stabilising role by raising its policy interest rate. The responses to a credit shock are short-lived compared to an interest rate shock. Third, external shocks play a strong role in the movements of domestic macro-aggregates. By studying the effectiveness of monetary policy and the credit shock on the real economy of Bangladesh as an example, the study contributes in general to the monetary policy literature on Bangladesh and developing countries with similar characteristics.