Monetary policy involves a monetary authority such as a central bank controlling the supply of money and interest rates to promote economic stability. The goals are typically stable prices and low unemployment. There are several types of monetary policy approaches including inflation targeting, price level targeting, monetary aggregates, fixed exchange rates, and gold standards. Central banks use tools like open market operations, interest rate adjustments, and reserve requirements to implement monetary policy and influence factors like money supply, interbank interest rates, banking system risk, and the monetary base.
The document summarizes monetary policy, which is carried out by central banks to control money supply and promote economic growth and stability. The main objectives of monetary policy are price stability, economic growth, and stable exchange rates. Central banks use tools like interest rates, reserve requirements, and open market operations to implement expansionary or contractionary monetary policy depending on economic conditions. The document then discusses monetary policy specifics in Pakistan, including interest rate trends over the past 15 years and recent policy decisions by the State Bank of Pakistan.
The document discusses monetary policy in Pakistan. It defines monetary policy as the process by which a central bank controls money supply to influence economic growth and stability. The objectives of monetary policy in Pakistan are to ensure price stability, promote economic growth, and maintain exchange rate stability. The key tools used are open market operations, discount rates, and required reserve ratios. Recently, the State Bank of Pakistan raised its key interest rate by 50 basis points to 10.75% to tighten monetary policy.
Monetary policy in pakistan.
How monetary policy works
Monetary policy tools
Target rates
Central bank policy
State Bank Of Pakistan
Inflation rate
Interest rate
Economic growth
balance policy
State Bank Of Pakistan (SBP)- Monetary PolicySalma Bashir
The State Bank of Pakistan (SBP) is the central bank of Pakistan and is charged with the duty to "regulate the issue of bank notes and keeping of reserves with a view to securing monetary stability in Pakistan and generally to operate the currency and credit system of the country to its advantage".
Monetary policy aims to control the money supply and interest rates to achieve goals like full employment and price stability. The State Bank of Pakistan (SBP) uses various quantitative and qualitative tools of monetary policy like open market operations, bank rates, and credit ceilings. SBP targets money supply levels and interest rates. Over the years, SBP has implemented both tight and easy monetary policies in response to economic conditions - tightening in periods of high inflation and easing to encourage growth. SBP faces challenges in balancing objectives of inflation, growth, and payments stability but aims to improve forecasting, understand policy transmission, and increase transparency.
This document discusses monetary policy and how it is used by central banks to control the supply of money and achieve goals such as price stability. It describes expansionary and contractionary monetary policy and how central banks use tools like open market operations and adjusting required reserve ratios. Open market operations work by buying or selling government bonds to commercial banks and the public to increase or decrease bank reserves and the overall money supply. The goals of monetary policy are outlined as price stability, high employment, economic growth, stability of financial markets, and stability in foreign exchange markets.
The document discusses the transmission mechanism of monetary policy through four key points:
1. It introduces the transmission mechanism and defines it as the series of links between monetary policy changes and their impacts on output, employment, and inflation.
2. It outlines the session, which will cover the impact of interest rate changes on other interest rates, consumption, and investment.
3. It provides brief definitions and discussions of consumption and investment, and how monetary policy influences them through several channels like interest rates, asset prices, and exchange rates.
4. It notes that monetary policy is likely to influence aggregate demand in various ways and that the relationship between interest rates and aggregate demand is complex, being influenced by expectations and time
The document summarizes monetary policy, which is carried out by central banks to control money supply and promote economic growth and stability. The main objectives of monetary policy are price stability, economic growth, and stable exchange rates. Central banks use tools like interest rates, reserve requirements, and open market operations to implement expansionary or contractionary monetary policy depending on economic conditions. The document then discusses monetary policy specifics in Pakistan, including interest rate trends over the past 15 years and recent policy decisions by the State Bank of Pakistan.
The document discusses monetary policy in Pakistan. It defines monetary policy as the process by which a central bank controls money supply to influence economic growth and stability. The objectives of monetary policy in Pakistan are to ensure price stability, promote economic growth, and maintain exchange rate stability. The key tools used are open market operations, discount rates, and required reserve ratios. Recently, the State Bank of Pakistan raised its key interest rate by 50 basis points to 10.75% to tighten monetary policy.
Monetary policy in pakistan.
How monetary policy works
Monetary policy tools
Target rates
Central bank policy
State Bank Of Pakistan
Inflation rate
Interest rate
Economic growth
balance policy
State Bank Of Pakistan (SBP)- Monetary PolicySalma Bashir
The State Bank of Pakistan (SBP) is the central bank of Pakistan and is charged with the duty to "regulate the issue of bank notes and keeping of reserves with a view to securing monetary stability in Pakistan and generally to operate the currency and credit system of the country to its advantage".
Monetary policy aims to control the money supply and interest rates to achieve goals like full employment and price stability. The State Bank of Pakistan (SBP) uses various quantitative and qualitative tools of monetary policy like open market operations, bank rates, and credit ceilings. SBP targets money supply levels and interest rates. Over the years, SBP has implemented both tight and easy monetary policies in response to economic conditions - tightening in periods of high inflation and easing to encourage growth. SBP faces challenges in balancing objectives of inflation, growth, and payments stability but aims to improve forecasting, understand policy transmission, and increase transparency.
This document discusses monetary policy and how it is used by central banks to control the supply of money and achieve goals such as price stability. It describes expansionary and contractionary monetary policy and how central banks use tools like open market operations and adjusting required reserve ratios. Open market operations work by buying or selling government bonds to commercial banks and the public to increase or decrease bank reserves and the overall money supply. The goals of monetary policy are outlined as price stability, high employment, economic growth, stability of financial markets, and stability in foreign exchange markets.
The document discusses the transmission mechanism of monetary policy through four key points:
1. It introduces the transmission mechanism and defines it as the series of links between monetary policy changes and their impacts on output, employment, and inflation.
2. It outlines the session, which will cover the impact of interest rate changes on other interest rates, consumption, and investment.
3. It provides brief definitions and discussions of consumption and investment, and how monetary policy influences them through several channels like interest rates, asset prices, and exchange rates.
4. It notes that monetary policy is likely to influence aggregate demand in various ways and that the relationship between interest rates and aggregate demand is complex, being influenced by expectations and time
Fiscal policy uses government spending, taxes, and borrowing to influence macroeconomic variables. Expansionary fiscal policy, such as tax cuts or increased spending, increases aggregate demand to boost a recession-plagued economy. Contractionary fiscal policy, like tax increases or spending cuts, decreases aggregate demand to curb inflation. Automatic stabilizers like unemployment insurance and the progressive tax system counter cyclical changes automatically. Discretionary policy actively manipulates fiscal tools but faces time lags and crowding out effects.
Central bank and state bank of pakistan, Functions, Prudential regulationHijratullah Tahir
The document discusses the State Bank of Pakistan (SBP), which is Pakistan's central bank. It outlines the definitions of a bank and central bank. The SBP's primary functions include issuing currency, controlling credit, regulating and supervising banks, acting as a clearing house and lender of last resort, and serving as a banker and agent to the government. Secondary functions involve public debt management, foreign exchange management, advising the government, and relations with international financial institutions. The SBP aims to facilitate economic growth and development. It establishes prudential regulations to provide safety for deposits and maintain financial stability.
Monetary policy refers to actions taken by central banks to control money supply and credit conditions in order to promote economic growth and stability. The key objectives of monetary policy are full employment, price stability, economic growth, and balance of payments equilibrium. Central banks use both quantitative and qualitative instruments to achieve these objectives. Quantitative instruments include open market operations, bank rate changes, and reserve requirement ratios. Qualitative instruments include credit rationing, margin requirements, and moral suasion. Recent trends in India's monetary policy include keeping the repo rate unchanged at 8% while reducing statutory liquidity ratio requirements.
The State Bank of Pakistan is the central bank of Pakistan. It was established in 1948 with headquarters in Karachi. The Governor leads the bank and is responsible for monetary policy, regulating banks and other financial institutions, and advising the government on economic matters. In addition to traditional central banking functions like being the banker to the government and banks, the State Bank promotes agriculture, Islamic banking, manages foreign exchange reserves, and participates in national development.
Monetary policy aims to regulate money supply and interest rates to control inflation and stabilize currency. Fiscal policy uses government spending and taxation to influence the economy. Both policies aim for low inflation, employment, exchange rate stability, and growth. Monetary policy maintains money supply balance while fiscal policy stimulates or regulates economic activity. These policies are most effective when coordinated but political pressures can undermine economic objectives. The best policy combination ensures sustained growth and employment without inflation, but external shocks pose challenges, especially for developing economies like Pakistan.
The document discusses fiscal policy, which are changes in government spending and taxes that influence macroeconomic goals. It defines expansionary and contractionary fiscal policy and discusses discretionary versus automatic fiscal policy. It also examines the effects of fiscal policy using the Keynesian model and explores factors that could limit the effectiveness of fiscal policy like lags, crowding out, and supply-side considerations.
Role of state bank of pakistan in economic development of the countryMateen Altaf
State Bank of Pakistan plays a key role in Pakistan's economic development by issuing currency, acting as a bank for the government and other commercial banks, controlling the money supply through various mechanisms, providing advice to the government, and managing foreign exchange reserves. It helps develop credit institutions, the money market and banking sector to facilitate economic growth. The central bank also works to establish development funds, negotiate international agreements, and collect economic data to support planning and development in the country.
central bank is the father of all banks, main regulatory body of the nation which control and regulate all the banks of the country. central bank is the financial advisor to the government.
Relationships between Inflation, Interest Rates, and Exchange Rates ICAB
The document discusses purchasing power parity (PPP) theory and the international Fisher effect (IFE) theory. PPP theory states that inflation rate differentials between countries will lead to changes in exchange rates as the high inflation country's currency depreciates. IFE theory similarly argues that interest rate differentials, which often correlate with expected inflation differentials, will cause the high interest rate currency to depreciate. Both theories predict that the currency experiencing higher inflation or interest rates will lose value against other currencies. The document also provides derivations of the PPP and IFE formulas to calculate expected exchange rate changes based on inflation or interest rate differentials.
Monetary policy aims to control money supply, interest rates, and achieve economic growth. The objectives of monetary policy are economic growth, full employment, price stability, neutrality of money, and exchange rate stability. Monetary policy tools include expansionary policy which increases money supply and lowers interest rates, and contractionary policy which decreases money supply and raises interest rates. Instruments of monetary policy include quantitative measures like open market operations and changes in reserve requirements, and qualitative measures like moral suasion and publicity.
Country risk analysis involves assessing the potential risks and rewards of doing business in a country. Country risk represents the potentially adverse impact of a country's environment on a firm's cash flows. Country risk analysis can be used to monitor risk in countries where a firm operates, screen countries to avoid excessive risk, and improve long-term investment and financing decisions. Key factors in country risk analysis include political, financial, economic, and other country-specific conditions. Firms use various quantitative and qualitative techniques to evaluate and compare country risks.
This document is a presentation on monetary policy in Bangladesh by Group 16. It begins with introductions of the group members. The presentation covers topics such as the definition of monetary policy, the tools and transmission mechanisms of monetary policy, impacts of monetary policy on inflation and capital markets, Bangladesh Bank's monetary policy stances and challenges to monetary policy in Bangladesh. The presentation provides an overview of key concepts in monetary policy as well as analysis of monetary policies implemented in Bangladesh.
Monetary policy refers to credit control measures adopted by central banks using instruments like bank rate policy, open market operations, cash reserve ratio, and selective credit controls. Expansionary monetary policy eases credit conditions to boost aggregate demand during recessions, while restrictive policy curtails demand to control inflation. Fiscal policy uses taxation and public expenditure tools to achieve stabilization or growth. Crowding out occurs when increased government borrowing drives up interest rates, reducing private consumption and investment.
The State Bank of Pakistan (SBP) is the central bank of Pakistan. It was established in 1948 and is headquartered in Karachi, with a second headquarters in Islamabad. As the central bank, the SBP regulates the banking sector, conducts monetary policy, and oversees financial stability in Pakistan. It uses both direct instruments like reserve requirements and interest rate controls, as well as indirect instruments like open market operations and treasury bill auctions to influence monetary conditions and achieve its policy objectives. The SBP also works to develop the financial system and promote priority sectors in Pakistan.
Monetary policy uses tools like interest rates and money supply to influence economic outcomes like growth, inflation, exchange rates, and unemployment. The objectives of monetary policy are price stability, credit availability, exchange rate stability, full employment, and high economic growth. The tools available to central banks include open market operations, changing reserve requirements, and setting bank interest rates like the discount rate. How monetary policy works is by influencing the cost of borrowing - lower rates encourage more spending, saving, and investment in assets like property and stocks.
The document discusses India's balance of payments. It includes:
1. The current account which covers merchandise (exports and imports) and invisibles (services, transfers, investment income).
2. The capital account which includes foreign investment, loans, banking capital, and other capital flows.
3. Errors and omissions and the overall balance which is the sum of the current account, capital account and errors/omissions.
This document discusses econometrics and its applications. It defines econometrics as using statistical methods to estimate economic relationships and test economic theories. Econometrics allows estimating relationships between economic variables, testing hypotheses, and forecasting. It helps explain qualitative economic data quantitatively and evaluate government policies. Common econometric methods discussed include simple and multiple linear regression, estimation theory, and time series analysis. The document also notes some limitations of econometrics, such as not proving causation and possible issues with data interpretation.
Monetary policy aims to control the money supply and interest rates to promote economic growth and stability. The objectives of monetary policy differ for developed and underdeveloped countries. Underdeveloped countries aim to achieve full employment and economic growth, while developed countries focus on high demand without inflation. Monetary policy tools include open market operations, required reserves, and interest rates. Central banks target variables like money supply and interest rates to indirectly influence macroeconomic goals like inflation and growth. The State Bank of Pakistan has utilized tight and easy monetary stances over the years in response to economic conditions, aiming to balance objectives like inflation, growth, and stability.
In State Bank of Pakistan, the head is called “Chairman” or “President” of the Bank. And after President there is Five Broad of Directors. SBP has Seven Departments which control the working of the Divisions, Wing, Section and Regional of the state bank of Pakistan.
The document presents a case study of the WAPDA House building in Lahore, Pakistan. It provides background on the objective to evaluate the building's facade appearance. Some key details include:
- The building was designed by American architect Edward Durrel Stone and completed in 1963 to house the Pakistan Water and Power Development Authority.
- Architectural features of the building include bay windows, a dome-like structure, thin columns, rectangular patterns on the facade and interior, and perforated canopies.
- While some Mughal-inspired elements were incorporated, the architect failed to truly capture the essence of traditional Mughal architecture for the region's climate and instead replicated his own prior work from the United States
This document provides an overview of the (Genco-III) Northern Power Generation Company Limited in Pakistan. It discusses the company's 6 power generation units with a total capacity of 1,370MW, fueled by furnace oil. The report outlines the key components of the thermal power plant, including the boiler, steam turbine, condenser, water feeding system, fuel facilities, electricity generation equipment, and 220kV switchyard. It also includes sections on the objectives, goals and operations of the power plant.
Fiscal policy uses government spending, taxes, and borrowing to influence macroeconomic variables. Expansionary fiscal policy, such as tax cuts or increased spending, increases aggregate demand to boost a recession-plagued economy. Contractionary fiscal policy, like tax increases or spending cuts, decreases aggregate demand to curb inflation. Automatic stabilizers like unemployment insurance and the progressive tax system counter cyclical changes automatically. Discretionary policy actively manipulates fiscal tools but faces time lags and crowding out effects.
Central bank and state bank of pakistan, Functions, Prudential regulationHijratullah Tahir
The document discusses the State Bank of Pakistan (SBP), which is Pakistan's central bank. It outlines the definitions of a bank and central bank. The SBP's primary functions include issuing currency, controlling credit, regulating and supervising banks, acting as a clearing house and lender of last resort, and serving as a banker and agent to the government. Secondary functions involve public debt management, foreign exchange management, advising the government, and relations with international financial institutions. The SBP aims to facilitate economic growth and development. It establishes prudential regulations to provide safety for deposits and maintain financial stability.
Monetary policy refers to actions taken by central banks to control money supply and credit conditions in order to promote economic growth and stability. The key objectives of monetary policy are full employment, price stability, economic growth, and balance of payments equilibrium. Central banks use both quantitative and qualitative instruments to achieve these objectives. Quantitative instruments include open market operations, bank rate changes, and reserve requirement ratios. Qualitative instruments include credit rationing, margin requirements, and moral suasion. Recent trends in India's monetary policy include keeping the repo rate unchanged at 8% while reducing statutory liquidity ratio requirements.
The State Bank of Pakistan is the central bank of Pakistan. It was established in 1948 with headquarters in Karachi. The Governor leads the bank and is responsible for monetary policy, regulating banks and other financial institutions, and advising the government on economic matters. In addition to traditional central banking functions like being the banker to the government and banks, the State Bank promotes agriculture, Islamic banking, manages foreign exchange reserves, and participates in national development.
Monetary policy aims to regulate money supply and interest rates to control inflation and stabilize currency. Fiscal policy uses government spending and taxation to influence the economy. Both policies aim for low inflation, employment, exchange rate stability, and growth. Monetary policy maintains money supply balance while fiscal policy stimulates or regulates economic activity. These policies are most effective when coordinated but political pressures can undermine economic objectives. The best policy combination ensures sustained growth and employment without inflation, but external shocks pose challenges, especially for developing economies like Pakistan.
The document discusses fiscal policy, which are changes in government spending and taxes that influence macroeconomic goals. It defines expansionary and contractionary fiscal policy and discusses discretionary versus automatic fiscal policy. It also examines the effects of fiscal policy using the Keynesian model and explores factors that could limit the effectiveness of fiscal policy like lags, crowding out, and supply-side considerations.
Role of state bank of pakistan in economic development of the countryMateen Altaf
State Bank of Pakistan plays a key role in Pakistan's economic development by issuing currency, acting as a bank for the government and other commercial banks, controlling the money supply through various mechanisms, providing advice to the government, and managing foreign exchange reserves. It helps develop credit institutions, the money market and banking sector to facilitate economic growth. The central bank also works to establish development funds, negotiate international agreements, and collect economic data to support planning and development in the country.
central bank is the father of all banks, main regulatory body of the nation which control and regulate all the banks of the country. central bank is the financial advisor to the government.
Relationships between Inflation, Interest Rates, and Exchange Rates ICAB
The document discusses purchasing power parity (PPP) theory and the international Fisher effect (IFE) theory. PPP theory states that inflation rate differentials between countries will lead to changes in exchange rates as the high inflation country's currency depreciates. IFE theory similarly argues that interest rate differentials, which often correlate with expected inflation differentials, will cause the high interest rate currency to depreciate. Both theories predict that the currency experiencing higher inflation or interest rates will lose value against other currencies. The document also provides derivations of the PPP and IFE formulas to calculate expected exchange rate changes based on inflation or interest rate differentials.
Monetary policy aims to control money supply, interest rates, and achieve economic growth. The objectives of monetary policy are economic growth, full employment, price stability, neutrality of money, and exchange rate stability. Monetary policy tools include expansionary policy which increases money supply and lowers interest rates, and contractionary policy which decreases money supply and raises interest rates. Instruments of monetary policy include quantitative measures like open market operations and changes in reserve requirements, and qualitative measures like moral suasion and publicity.
Country risk analysis involves assessing the potential risks and rewards of doing business in a country. Country risk represents the potentially adverse impact of a country's environment on a firm's cash flows. Country risk analysis can be used to monitor risk in countries where a firm operates, screen countries to avoid excessive risk, and improve long-term investment and financing decisions. Key factors in country risk analysis include political, financial, economic, and other country-specific conditions. Firms use various quantitative and qualitative techniques to evaluate and compare country risks.
This document is a presentation on monetary policy in Bangladesh by Group 16. It begins with introductions of the group members. The presentation covers topics such as the definition of monetary policy, the tools and transmission mechanisms of monetary policy, impacts of monetary policy on inflation and capital markets, Bangladesh Bank's monetary policy stances and challenges to monetary policy in Bangladesh. The presentation provides an overview of key concepts in monetary policy as well as analysis of monetary policies implemented in Bangladesh.
Monetary policy refers to credit control measures adopted by central banks using instruments like bank rate policy, open market operations, cash reserve ratio, and selective credit controls. Expansionary monetary policy eases credit conditions to boost aggregate demand during recessions, while restrictive policy curtails demand to control inflation. Fiscal policy uses taxation and public expenditure tools to achieve stabilization or growth. Crowding out occurs when increased government borrowing drives up interest rates, reducing private consumption and investment.
The State Bank of Pakistan (SBP) is the central bank of Pakistan. It was established in 1948 and is headquartered in Karachi, with a second headquarters in Islamabad. As the central bank, the SBP regulates the banking sector, conducts monetary policy, and oversees financial stability in Pakistan. It uses both direct instruments like reserve requirements and interest rate controls, as well as indirect instruments like open market operations and treasury bill auctions to influence monetary conditions and achieve its policy objectives. The SBP also works to develop the financial system and promote priority sectors in Pakistan.
Monetary policy uses tools like interest rates and money supply to influence economic outcomes like growth, inflation, exchange rates, and unemployment. The objectives of monetary policy are price stability, credit availability, exchange rate stability, full employment, and high economic growth. The tools available to central banks include open market operations, changing reserve requirements, and setting bank interest rates like the discount rate. How monetary policy works is by influencing the cost of borrowing - lower rates encourage more spending, saving, and investment in assets like property and stocks.
The document discusses India's balance of payments. It includes:
1. The current account which covers merchandise (exports and imports) and invisibles (services, transfers, investment income).
2. The capital account which includes foreign investment, loans, banking capital, and other capital flows.
3. Errors and omissions and the overall balance which is the sum of the current account, capital account and errors/omissions.
This document discusses econometrics and its applications. It defines econometrics as using statistical methods to estimate economic relationships and test economic theories. Econometrics allows estimating relationships between economic variables, testing hypotheses, and forecasting. It helps explain qualitative economic data quantitatively and evaluate government policies. Common econometric methods discussed include simple and multiple linear regression, estimation theory, and time series analysis. The document also notes some limitations of econometrics, such as not proving causation and possible issues with data interpretation.
Monetary policy aims to control the money supply and interest rates to promote economic growth and stability. The objectives of monetary policy differ for developed and underdeveloped countries. Underdeveloped countries aim to achieve full employment and economic growth, while developed countries focus on high demand without inflation. Monetary policy tools include open market operations, required reserves, and interest rates. Central banks target variables like money supply and interest rates to indirectly influence macroeconomic goals like inflation and growth. The State Bank of Pakistan has utilized tight and easy monetary stances over the years in response to economic conditions, aiming to balance objectives like inflation, growth, and stability.
In State Bank of Pakistan, the head is called “Chairman” or “President” of the Bank. And after President there is Five Broad of Directors. SBP has Seven Departments which control the working of the Divisions, Wing, Section and Regional of the state bank of Pakistan.
The document presents a case study of the WAPDA House building in Lahore, Pakistan. It provides background on the objective to evaluate the building's facade appearance. Some key details include:
- The building was designed by American architect Edward Durrel Stone and completed in 1963 to house the Pakistan Water and Power Development Authority.
- Architectural features of the building include bay windows, a dome-like structure, thin columns, rectangular patterns on the facade and interior, and perforated canopies.
- While some Mughal-inspired elements were incorporated, the architect failed to truly capture the essence of traditional Mughal architecture for the region's climate and instead replicated his own prior work from the United States
This document provides an overview of the (Genco-III) Northern Power Generation Company Limited in Pakistan. It discusses the company's 6 power generation units with a total capacity of 1,370MW, fueled by furnace oil. The report outlines the key components of the thermal power plant, including the boiler, steam turbine, condenser, water feeding system, fuel facilities, electricity generation equipment, and 220kV switchyard. It also includes sections on the objectives, goals and operations of the power plant.
The document provides an overview of the rehabilitation programs and status updates for three thermal power generation companies (GENCOs) in Pakistan. It summarizes the installed capacity and generation assets for each GENCO. It then details rehabilitation work completed at Jamshoro Power Plant (GENCO-1), Guddu Power Plant (GENCO-2), and Muzaffargarh Power Plant (GENCO-3) with USAID assistance, highlighting capacity gains achieved or expected at each plant. It concludes with responses to queries from NEPRA on various regulatory requirements.
Monetary policy is how a central bank acts in its economic environment. A central bank is a national (or, in the case of the European Central Bank, a supranational) institution. Mostly the primary goal is to maintain price stability. Another common goal is to support the economy if it does not inhibit the achievement of price stability to a risky extent. This chapter examines what different costs arise due to inflation (increasing prices) and why it makes sense to keep inflation at a moderate level, to maintain price stability respectively
This document summarizes a study that estimates Pakistan's monetary policy reaction function to identify the central bank's objectives and other influential factors. The study models the reaction function including five policy objectives - output, inflation, exchange rate stabilization, interest rate smoothing, and reducing trade deficits. It also includes two control variables: foreign exchange reserves and government borrowing. Estimating the model via vector autoregression, it finds the interest rate responds positively to output, inflation, exchange rate, and trade deficits, but negatively to reserves and borrowing. Variance decomposition shows interest rate is most influenced by its own lags, followed by inflation, borrowing, exchange rate, output, trade deficits, and reserves. The study aims to better understand Pakistan's monetary policy compared
Internship report of genco 3 Wapda Muzafar garh Rashid Javed
internship report of GENCO III "Internship report as an academic project in summer vacation in 2013"
The Islamia University of Bahawalpur "department of management sciences"
This document provides an overview of an internship report on the Multan Electric Power Company (MEPCO). It includes sections on the purpose of the study, an introduction to MEPCO including its history, vision, mission and core values. There are also sections on the technical overview of MEPCO, its organizational structure, departments, HR department and SWOT analysis. The document aims to provide a comprehensive report on MEPCO based on the author's internship experience.
The global lighting market is undergoing changes driven by urban growth and energy efficiency. It is estimated to be worth €110 billion by 2020, growing at 6% annually from 2010-2016 and 3% from 2016-2020. General lighting makes up the largest segment at around 75% currently and is expected to reach 80% by 2020. LED lighting is driving market growth as construction increases in emerging markets and higher priced LED technology becomes more widely used. The lighting market is comparable in size to the global TV and computer markets but has received less attention until now.
Monetary policy involves controlling the supply, availability, and cost of money in an economy to achieve objectives related to economic growth and stability. It can be expansionary, increasing the money supply to combat unemployment, or contractionary, decreasing the money supply to combat inflation. Common tools of monetary policy include open market operations, reserve requirements, interest rates, and currency boards. The goals and tools used vary between inflation targeting, price level targeting, monetary aggregates, fixed exchange rates, and mixed approaches.
The document provides an overview of monetary policy, including:
- Monetary policy uses tools like interest rates and money supply to influence economic growth, inflation, and unemployment.
- Expansionary policy lowers interest rates to reduce unemployment during recessions, while contractionary policy raises rates to reduce inflation.
- Central banks implement monetary policy and use tools like open market operations, reserve requirements, and interest rates to influence the money supply.
- The goal of monetary policy is usually price stability and low unemployment.
The document discusses fiscal policy and monetary policy. Fiscal policy involves government spending and taxation and can have an expansionary, contractionary, or neutral stance. Methods of funding fiscal policy include taxation, seigniorage, borrowing, consumption of reserves, and asset sales. Fiscal policy aims to influence aggregate demand and achieve objectives like price stability and full employment. Monetary policy involves controlling the money supply, often targeting interest rates, to achieve goals like low inflation and unemployment. Tools of monetary policy include changing the monetary base, reserve requirements, discount window lending, and interest rates.
Monetary policy manages the money supply through tools like adjusting interest rates, purchasing or selling government securities, and changing required bank reserves. It aims to regulate inflation, unemployment, and currency exchange rates. Johnson defines monetary policy as employing central bank control of the money supply to achieve general economic policy goals, while Shaw defines it as conscious actions to change the quantity, availability, or cost of money.
Monetary policy manages the money supply through tools like adjusting interest rates, purchasing or selling government securities, and changing required bank reserves. It aims to regulate inflation, unemployment, and currency exchange rates. Johnson defines monetary policy as employing central bank control of the money supply to achieve general economic policy goals, while Shaw defines it as conscious actions to change the quantity, availability, or cost of money.
Central banks play a key role in monetary policy and the economy. They influence money supply and interest rates through tools like open market operations, reserve requirements, and interest rate policy. The primary objective of monetary policy is typically price stability, while also promoting goals like full employment. Central banks use both direct and indirect market instruments to achieve their objectives.
What Is Monetary Policy?: Unlock The 2 Important Types Of It Compare Closing LLCCompareClosing
Monetary policy is a set of tools built with the intention of promoting sustainable economic growth.
A country’s central bank promotes these tools by controlling the overall supply of money that is available at the nation’s banks, its consumers, and its businesses.
The document discusses key concepts related to monetary policy and central banking. It defines monetary policy as how a central bank controls the supply of money and interest rates to promote economic stability and growth. Expansionary policy aims to increase the money supply to boost the economy, while contractionary policy decreases the money supply to curb inflation. Other topics covered include required reserve ratios, discount rates, budget deficits and surpluses, trade deficits and surpluses, and how central banks use tools like open market operations and interest rates to influence monetary conditions.
The effects of monetary policy on inflation in ghana.Alexander Decker
This document summarizes a study on the effects of monetary policy on inflation in Ghana. The study used annual data from 1985 to 2009 to estimate a model relating the interest rate, exchange rate, and money supply to inflation. The results showed a long-run positive relationship between money supply and inflation, and a negative relationship between interest rate and inflation, but a positive relationship between exchange rate and inflation. The study recommends that monetary policy alone should not be used to control inflation and that fiscal and other non-monetary measures are also needed.
This document provides background information on monetary policy. It defines monetary policy as how central banks manage money supply to promote economic goals. It discusses how central banks execute monetary policy independently of governments through tools like interest rates and reserve requirements. The objectives of monetary policy are maintaining price stability and economic growth. The document also outlines the process of monetary policy decision making in Bangladesh, which involves setting targets and using tools like open market operations and bank rates.
Topic: Expansionary and Contractionary Monetary Policy | Course: Money and ba...Binte Zahra
This document summarizes expansionary and contractionary monetary policy tools used by central banks. It discusses monetary policy, open market operations (OMO), reserve requirements, and discount rates. Expansionary tools like lowering reserve requirements and interest rates increase the money supply to stimulate the economy. Contractionary tools like raising reserve requirements and interest rates decrease the money supply to curb inflation. OMO involves buying and selling government securities to adjust commercial bank reserves and interest rates.
The Federal Reserve has several tools to control the money supply and conduct monetary policy, including: setting reserve requirements, adjusting the discount rate, and conducting open market operations. Changing the money supply affects interest rates, which then impact investment and spending in the economy. Proper timing of monetary policy is important to stabilize the business cycle and smooth out economic fluctuations, but lags in policy implementation and effect can make the appropriate response challenging to determine.
Monetary policy involves central banks controlling the supply of money and interest rates to influence economic activity like prices and employment. It works through expanding or contracting investment and consumption spending. The objectives of monetary policy in India are to achieve rapid economic growth, price stability, exchange rate stability, balance of payments equilibrium, full employment, and an equal distribution of income. Some tools used in monetary policy include adjusting the bank rate, conducting open market operations, and varying reserve requirements to influence the money supply and credit conditions. Both quantitative and qualitative tools are used to target monetary policy objectives.
The document discusses the key aspects and reforms of India's financial system. It provides an overview of financial institutions, markets, instruments and services. It then outlines some major reforms in the banking system, government security market, and broader financial sector since 1991, including reducing reserve requirements, developing new markets and instruments, and establishing regulatory authorities.
Monetary Policy and its impact in Pakistantahirsartaj81
The document discusses monetary policy in Pakistan. It defines monetary policy and describes the Monetary Policy Committee's constitution. The objectives of monetary policy are outlined as price stability, full employment, economic growth, and exchange rate stability. The tools of monetary policy discussed include open market operations, reserve requirements, discount rates, currency intervention, and forward guidance. Examples are provided of how these tools work in Pakistan. Challenges in implementing monetary policy and lessons from historical examples are also summarized.
This document provides information on monetary, fiscal, and budgetary policies. It discusses:
- Monetary policy and how central banks use tools like interest rates and reserves to influence money supply and economic growth.
- Fiscal policy and the types of expansionary and contractionary fiscal policy used to influence aggregate demand.
- Government budgets, deficits, and how fiscal policy is funded through taxation, borrowing, prior surpluses, or other means.
- The history and instruments of monetary policy, types of fiscal policy, and how monetary and fiscal policies can be used to influence inflation and unemployment.
The document summarizes how monetary policy works to influence interest rates and aggregate demand. The Federal Reserve uses open market operations and the money supply to target a federal funds rate, thereby affecting investment, GDP, and inflation in pursuit of price stability and full employment. While the Taylor Rule provides a model for predicting interest rate decisions, central banks now focus on inflation targeting by announcing and aiming to hit a specific inflation target.
Monetary policy refers to the measures taken by a central bank to control money supply and credit conditions in an economy. The objectives of monetary policy include price stability, economic growth, and full employment. Quantitative monetary policy tools include open market operations, bank rate policy, cash reserve ratio, and statutory liquidity ratio. Qualitative tools include moral suasion, direct action, and discriminatory interest rates. Open market operations involve the central bank buying and selling government securities to influence money supply and control inflation or deflation. Evidence shows that India's monetary policy has been effective in achieving economic growth while reining in inflation and ensuring financial stability.
this presentation is currently have this upload set to Public. This means that it will be indexed by search engines and view able by anyone on the web.
2. Elemental Economics - Mineral demand.pdfNeal Brewster
After this second you should be able to: Explain the main determinants of demand for any mineral product, and their relative importance; recognise and explain how demand for any product is likely to change with economic activity; recognise and explain the roles of technology and relative prices in influencing demand; be able to explain the differences between the rates of growth of demand for different products.
Economic Risk Factor Update: June 2024 [SlideShare]Commonwealth
May’s reports showed signs of continued economic growth, said Sam Millette, director, fixed income, in his latest Economic Risk Factor Update.
For more market updates, subscribe to The Independent Market Observer at https://blog.commonwealth.com/independent-market-observer.
[4:55 p.m.] Bryan Oates
OJPs are becoming a critical resource for policy-makers and researchers who study the labour market. LMIC continues to work with Vicinity Jobs’ data on OJPs, which can be explored in our Canadian Job Trends Dashboard. Valuable insights have been gained through our analysis of OJP data, including LMIC research lead
Suzanne Spiteri’s recent report on improving the quality and accessibility of job postings to reduce employment barriers for neurodivergent people.
Decoding job postings: Improving accessibility for neurodivergent job seekers
Improving the quality and accessibility of job postings is one way to reduce employment barriers for neurodivergent people.
Solution Manual For Financial Accounting, 8th Canadian Edition 2024, by Libby...Donc Test
Solution Manual For Financial Accounting, 8th Canadian Edition 2024, by Libby, Hodge, Verified Chapters 1 - 13, Complete Newest Version Solution Manual For Financial Accounting, 8th Canadian Edition by Libby, Hodge, Verified Chapters 1 - 13, Complete Newest Version Solution Manual For Financial Accounting 8th Canadian Edition Pdf Chapters Download Stuvia Solution Manual For Financial Accounting 8th Canadian Edition Ebook Download Stuvia Solution Manual For Financial Accounting 8th Canadian Edition Pdf Solution Manual For Financial Accounting 8th Canadian Edition Pdf Download Stuvia Financial Accounting 8th Canadian Edition Pdf Chapters Download Stuvia Financial Accounting 8th Canadian Edition Ebook Download Stuvia Financial Accounting 8th Canadian Edition Pdf Financial Accounting 8th Canadian Edition Pdf Download Stuvia
"Does Foreign Direct Investment Negatively Affect Preservation of Culture in the Global South? Case Studies in Thailand and Cambodia."
Do elements of globalization, such as Foreign Direct Investment (FDI), negatively affect the ability of countries in the Global South to preserve their culture? This research aims to answer this question by employing a cross-sectional comparative case study analysis utilizing methods of difference. Thailand and Cambodia are compared as they are in the same region and have a similar culture. The metric of difference between Thailand and Cambodia is their ability to preserve their culture. This ability is operationalized by their respective attitudes towards FDI; Thailand imposes stringent regulations and limitations on FDI while Cambodia does not hesitate to accept most FDI and imposes fewer limitations. The evidence from this study suggests that FDI from globally influential countries with high gross domestic products (GDPs) (e.g. China, U.S.) challenges the ability of countries with lower GDPs (e.g. Cambodia) to protect their culture. Furthermore, the ability, or lack thereof, of the receiving countries to protect their culture is amplified by the existence and implementation of restrictive FDI policies imposed by their governments.
My study abroad in Bali, Indonesia, inspired this research topic as I noticed how globalization is changing the culture of its people. I learned their language and way of life which helped me understand the beauty and importance of cultural preservation. I believe we could all benefit from learning new perspectives as they could help us ideate solutions to contemporary issues and empathize with others.
Independent Study - College of Wooster Research (2023-2024)
Monetary policy/ Credit Control of pakistan
1. Monetary policy
Monetary policy is the process by which the monetary authority of a country controls
the supply of money, often targeting a rate of interest for the purpose of
promoting economic growth and stability. The official goals usually include relatively stable
prices and low unemployment. Monetary economics provides insight into how to craft optimal
monetary policy.
History:
The Bank of England in 1699, which acquired the responsibility to print notes and back them
with gold, the idea of monetary policy as independent of executive action began to be
established. The goal of monetary policy was to maintain the value of the coinage, print notes
which would trade at par to specie, and prevent coins from leaving circulation. The
establishment of central banks by industrializing nations was associated then with the desire to
maintain the nation's peg to the gold standard, and to trade in a narrow band with other gold-
backed currencies. To accomplish this end, central banks as part of the gold standard began
setting the interest rates that they charged, both their own borrowers, and other banks who
required liquidity. The maintenance of a gold standard required almost monthly adjustments of
interest rates.
During the 1870–1920 period, the industrialized nations set up central banking systems, with
one of the last being the Federal Reserve in 1913. By this point the role of the central bank as
the "lender of last resort" was understood. It was also increasingly understood that interest rates
had an effect on the entire economy, in no small part because of the marginal revolution in
economics, which demonstrated how people would change a decision based on a change in the
economic trade-offs.
Types of Monetary Policy
Inflation targeting
Under this policy approach the target is to keep inflation, under a particular definition such
as Consumer Price Index, within a desired range.
The inflation target is achieved through periodic adjustments to the Central Bank interest
rate target. The interest rate used is generally the overnight rate at which banks lend to each
other overnight for cash flow purposes. Depending on the country this particular interest rate
might be called the cash rate or something similar.
The interest rate target is maintained for a specific duration using open market operations.
Typically the duration that the interest rate target is kept constant will vary between months and
years. This interest rate target is usually reviewed on a monthly or quarterly basis by a policy
committee.
2. Price level targeting
Price level targeting is a monetary policy that is similar to inflation targeting except that CPI
growth in one year over or under the long term price level target is offset in subsequent years
such that a targeted price-level is reached over time, e.g. five years, giving more certainty about
future price increases to consumers. Under inflation targeting what happened in the immediate
past years is not taken into account or adjusted for in the current and future years.
Monetary age
In the 1980s, several countries used an approach based on a constant growth in the money
supply. This approach was refined to include different classes of money and credit (M0, M1
etc.). In the USA this approach to monetary policy was discontinued with the selection of Alan
Greenspan as Fed Chairman.
This approach is also sometimes called monetarism.
While monetary policy typically focuses on a price signal of one form or another, this approach
is focused on monetary quantities. As these quantities could have a role on the economy and
business cycles depending on the households' risk aversion level, money is sometimes explicitly
added in the central bank's reaction function.
Fixed exchange rate
This policy is based on maintaining a fixed exchange rate with a foreign currency. There are
varying degrees of fixed exchange rates, which can be ranked in relation to how rigid the fixed
exchange rate is with the anchor nation.
Under a system of fiat fixed rates, the local government or monetary authority declares a fixed
exchange rate but does not actively buy or sell currency to maintain the rate. Instead, the rate is
enforced by non-convertibility measures (e.g. capital controls, import/export licenses, etc.). In
this case there is a black market exchange rate where the currency trades at its
market/unofficial rate.
Under a system of fixed-convertibility, currency is bought and sold by the central bank or
monetary authority on a daily basis to achieve the target exchange rate. This target rate may be
a fixed level or a fixed band within which the exchange rate may fluctuate until the monetary
authority intervenes to buy or sell as necessary to maintain the exchange rate within the band.
(In this case, the fixed exchange rate with a fixed level can be seen as a special case of the
fixed exchange rate with bands where the bands are set to zero.)
Under a system of fixed exchange rates maintained by a currency board every unit of local
currency must be backed by a unit of foreign currency (correcting for the exchange rate). This
ensures that the local monetary base does not inflate without being backed by hard currency
and eliminates any worries about a run on the local currency by those wishing to convert the
local currency to the hard (anchor) currency.
3. These policies often abdicate monetary policy to the foreign monetary authority or government
as monetary policy in the pegging nation must align with monetary policy in the anchor nation to
maintain the exchange rate. The degree to which local monetary policy becomes dependent on
the anchor nation depends on factors such as capital mobility, openness, credit channels and
other economic factors.
Gold standard
The gold standard is a system under which the price of the national currency is measured in
units of gold bars and is kept constant by the government's promise to buy or sell gold at a fixed
price in terms of the base currency. The gold standard might be regarded as a special case of
"fixed exchange rate" policy, or as a special type of commodity price level targeting.
Today this type of monetary policy is no longer used by any country, although the gold standard
was widely used across the world between the mid-19th century through 1971. Its major
advantages were simplicity and transparency. The gold standard was abandoned during
the Great Depression, as countries sought to reinvigorate their economies by increasing their
money supply. The Breton Woods system, which was a modified gold standard, replaced it in
the aftermath of World. However, this system too broke down during the Nixon shock of 1971.
Monetary Policy: Target Market Variable: Long Term Objective:
Inflation Targeting Interest rate on overnight
debt
A given rate of change in the CPI
Price Level
Targeting
Interest rate on overnight
debt
A specific CPI number
Monetary
Aggregates
The growth in money supply A given rate of change in the CPI
Fixed Exchange
Rate
The spot price of the
currency
The spot price of the currency
Gold Standard The spot price of gold Low inflation as measured by the gold
price
Mixed Policy Usually interest rates Usually unemployment + CPI change
4. Policy Instruments
The first tactic manages the money supply. This mainly involves buying government bonds
(expanding the money supply) or selling them (contracting the money supply). In the Federal
Reserve System, these are known as open market operations, because the central bank buys
and sells government bonds in public markets. Most of the government bonds bought and sold
through open market operations are short-term government bonds bought and sold from
Federal Reserve System member banks and from large financial institutions. When the central
bank disburses or collects payment for these bonds, it alters the amount of money in the
economy while simultaneously affecting the price (and thereby the yield) of short-term
government bonds. The change in the amount of money in the economy in turn
affects interbank interest rates.
The second tactic manages money demand. Demand for money, like demand for most things, is
sensitive to price. For money, the price is the interest rates charged to borrowers. Setting
banking-system lending or interest rates (such as the US overnight bank lending rate, the
federal funds discount Rate, and the London Interbank Offer Rate, or Libor) in order to manage
money demand is a major tool used by central banks. Ordinarily, a central bank conducts
monetary policy by raising or lowering its interest rate target for the interbank interest rate. If
the nominal interest rate is at or very near zero, the central bank cannot lower it further. Such a
situation, called a liquidity trap, can occur, for example, during deflation or when inflation is very
low.
The third tactic involves managing risk within the banking system. Banking systems use
fractional reserve banking to encourage the use of money for investment and expanding
economic activity. Banks must keep banking reserves on hand to handle actual cash needs, but
they can lend an amount equal to several times their actual reserves. The money lent out by
banks increases the money supply, and too much money (whether lent or printed) will lead to
inflation. Central banks manage systemic risks by maintaining a balance between expansionary
economic activity through bank lending and control of inflation through reserve requirements.
Monetary base
Monetary policy can be implemented by changing the size of the monetary base. Central banks
use open market operations to change the monetary base. The central bank buys or sells
reserve assets (usually financial instruments such as bonds) in exchange for money on deposit
at the central bank. Those deposits are convertible to currency. Together such currency and
deposits constitute the monetary base which is the general liabilities of the central bank in its
own monetary unit. Usually other banks can use base money as a fractional reserve and
expand the circulating money supply by a larger amount.
Reserve requirements
The monetary authority exerts regulatory control over banks. Monetary policy can be
implemented by changing the proportion of total assets that banks must hold in reserve with the
5. central bank. Banks only maintain a small portion of their assets as cash available for immediate
withdrawal; the rest is invested in illiquid assets like mortgages and loans. By changing the
proportion of total assets to be held as liquid cash, the Federal Reserve changes the availability
of loanable funds. This acts as a change in the money supply. Central banks typically do not
change the reserve requirements often as it can create volatile changes in the money supply
and may disrupt the banking system.
Discount window lending
Central banks normally offer a discount window, where commercial banks and other depository
institutions are able to borrow reserves from the Central Bank to meet temporary shortages of
liquidity caused by internal or external disruptions. This creates a stable financial environment
where savings and investment can occur, allowing for the growth of the economy as a whole.
The interest rate charged (called the 'discount rate') is usually set below short term interbank
market rates. Accessing the discount window allows institutions to vary credit conditions (i.e.,
the amount of money they have to loan out), thereby affecting the money supply. Through the
discount window, the central bank can affect the economic environment, and thus
unemployment and economic growth.
Interest rates
The contraction of the monetary supply can be achieved indirectly by increasing the nominal
interest rates. Monetary authorities in different nations have differing levels of control of
economy-wide interest rates. In the United States, the Federal Reserve can set the discount
rate, as well as achieve the desired Federal funds rate by open market operations. This rate has
significant effect on other market interest rates, but there is no perfect relationship. In the United
States open market operations are a relatively small part of the total volume in the bond market.
One cannot set independent targets for both the monetary base and the interest rate because
they are both modified by a single tool — open market operations; one must choose which one
to control. A meta-analysis of 70 empirical studies on monetary transmission finds that a one-
percentage-point increase in the interest rate typically leads to a 0.3% decrease in prices with
the maximum effect occurring between 6 and 12 months.
In other nations, the monetary authority may be able to mandate specific interest rates on loans,
savings accounts or other financial assets. By raising the interest rate(s) under its control, a
monetary authority can contract the money supply, because higher interest rates encourage
savings and discourage borrowing. Both of these effects reduce the size of the money supply.
Currency board
A currency board is a monetary arrangement that pegs the monetary base of one country to
another, the anchor nation. As such, it essentially operates as a hard fixed exchange rate,
whereby local currency in circulation is backed by foreign currency from the anchor nation at a
fixed rate. Thus, to grow the local monetary base an equivalent amount of foreign currency must
be held in reserves with the currency board. This limits the possibility for the local monetary
authority to inflate or pursue other objectives. The principal rationales behind a currency board
are threefold:
6. 1. To import monetary credibility of the anchor nation;
2. To maintain a fixed exchange rate with the anchor nation;
3. To establish credibility with the exchange rate (the currency board arrangement is the
hardest form of fixed exchange rates outside of dollarization).
In theory, it is possible that a country may peg the local currency to more than one foreign
currency; although, in practice this has never happened (and it would be a more complicated to
run than a simple single-currency currency board). A gold standard is a special case of a
currency board where the value of the national currency is linked to the value of gold instead of
a foreign currency.
The currency board in question will no longer issue fiat money but instead will only issue a set
number of units of local currency for each unit of foreign currency it has in its vault. The surplus
on the balance of payments of that country is reflected by higher deposits local banks hold at
the central bank as well as (initially) higher deposits of the (net) exporting firms at their local
banks. The growth of the domestic money supply can now be coupled to the additional deposits
of the banks at the central bank that equals additional hard foreign exchange reserves in the
hands of the central bank. The virtue of this system is that questions of currency stability no
longer apply. The drawbacks are that the country no longer has the ability to set monetary policy
according to other domestic considerations, and that the fixed exchange rate will, to a large
extent, also fix a country's terms of trade, irrespective of economic differences between it and its
trading partners.
Unconventional monetary policy at the zero bound
Other forms of monetary policy, particularly used when interest rates are at or near 0% and
there are concerns about deflation or deflation is occurring, are referred to as unconventional
monetary policy. These include credit easing, quantitative easing, and signaling. In credit
easing, a central bank purchases private sector assets to improve liquidity and improve access
to credit. Signaling can be used to lower market expectations for lower interest rates in the
future. For example, during the credit crisis of 2008, the US Federal Reserve indicated rates
would be low for an “extended period”, and the Bank of Canada made a “conditional
commitment” to keep rates at the lower bound of 25 basis points (0.25%) until the end of the
second quarter of 2010.
7. CREDIT CONTROL BY CENTRAL BANK/SBP
Meaning
Credit control policy or monetary policy may be defined as "that branch of economic policy
which is concerned with the regulation of the availability or supply, the costs and the directions
of credit."
OBJECTIVES or GOALS
The objectives of credit control of monetary policy have been different at different times in
different countries according to the economic situations and problems faced by them.
In the modern times economic development with monetary stability is accepted as the most
important goal of credit control.
The main objective of this credit-control function is to save economy from inflation and deflation
and to stabilize the economy and prices.
METHODS OF CREDIT CONTROL
Credit control is one of the most important responsibility of a central bank. Central bank of a
country can control credit by following two methods.
(1) Qualitative controls (2) Quantitative controls
QUANTITATIVE CONTROLS
Quantitative controls are used to expand or contract the total quantity (overall size) of credit.
These controls are of the following kinds:
1. Bank rate policy
2. Open market operations .
3. Variable reserve ratios
4. Liquidity ratio
5. Credit rationing
These are explained as under.
8. i. Bank Rate (or Discount Rate) Policy
Bank rate is the rate at which central bank rediscounts bill of exchange or provides credit to
commercial banks. For controlling credit central bank may increase or decrease bank rate.
When bank rate is raised, other bank's interest rates on advances also move up. When bank
rate is decreased, other banks' interest rates on advances also go down. Borrowing from banks
is discouraged or encouraged and, as a result, the rate of monetary expansion decreases or
increases.
2. Open Market Operation
Buying and selling of government securities by the central bank with a view to influencing
money supply is called open market operations. When the central bank sells securities the
buyers make payment for these to the central bank through commercial banks. A portion of
commercial banks' cash flows to the central bank. As a result, the lending and financing power
of banks decreases which leads to reduction in the rate of credit expansion. The purchase of
securities by the central bank has the reverse effects.
3. Variable Reserve Ratios
The amount of money which the banks are legally required to keep with the central bank is
termed legal cash reserve ratio or requirement. It is a certain percentage of deposits. If the cash
reserve ratio is raised, say from 5% to 7% of total deposits, the lending and financing power of
banks will contract accordingly. This will cause fall in the rate of money expansion. A decrease
in ratio has an opposite effect.
4. Liquidity Ratio
In Pakistan, liquidity ratio refers to the amount of assets which banks are legally required to hold
in the forms of (i) cash in hand, (ii) balances with SBP/NBP and (iii) approved securities. At
present it is 35% of total deposit liabilities. The effects of varying liquidity ratio are similar to
those of varying cash reserve ratio. The increase in it causes a fall and decrease in it a rise in
the rate of credit expansion.
5. Credit Rationing
In order to keep the total credit expansion within desirable limits, the central bank may
recommend ceilings (an upper limit) on the overall credit extended by each commercial bank.
9. QUALITATIVE CONTROLS
These include:
(1) Moral suasion.
(2) Method of Publicity.
(3) Direct Action
Selective controls are mainly, aimed at influencing the direction or distribution of credit.
(1) Moral Suasion
By virtue of its special position, the central bank can persuade commercial banks to follow a
specific credit policy. In this connection the central bank can employ oral or written appeals or
warnings.
(2) Publicity
The central bank through its different publications may give publicity to desirable credit policy in
the form of a few broad principles. The banks may take guidance from this in respect of their
lending and financing operations.
(3) Direct Action
if commercial banks do not follow the credit guidelines of central bank then central bank can
impose a penalty or refuse to discount bill of exchanges of commercial banks.
10. LIMITATIONS OF CREDIT CONTROL POLICY
Or
DIFFICULTIES IN CONTROLLING CREDIT
Credit control or monetary policy has many limitations. In other words, there are several
difficulties in the way of the central bank to control credit.
1. Absence of developed money markets.
In underdeveloped countries, central bank control over bank credit is rendered very difficult by
the absence of well-developed money markets.
2. Existence of non-monetized sector.
In less developed countries there exists a large non-monetized and rural subsistence sector.
Thus a big section of the community is quite unaffected by monetary policy.
3. Large-scale deficit financing.
A large-scale deficit financing by the government may make the central bank powerless in
controlling the amount of credit and inflationary pressures. Thus, unless it is prevented, the
credit control measures will have little value.
11. 4. Cooperation of banks.
It is very difficult for a central bank to control credit if commercial banks do not extend their full
cooperation.
5. Conflicting objectives.
The greatest difficulty in the way of the central bank in controlling credit is the simultaneous
achievement of conflicting objectives. For example controlling inflation and increasing
employment opportunities are conflicting objects.