Docstoc

monetary_policy

Document Sample
monetary_policy Powered By Docstoc
					Monetary Policy


           Prepared: Waseem Ulah Khan
           Lecturer Management Sciences
     Monetary Policy
Control of money and credit in the
country and total money supply is
called monetary policy.

Note: Central bank of each country
prepare monetary policy each year
        OBJECTIVES OF
       MONETARY POLICY

•   Regulation of Money Supply
•   To stabilize Interest Rate
•   To increase Investment
•   To increase Employment Opportunities
•   Price control
MONETARY POLICY TOOLS

1. QUANTITATIVE TOOLS
       Bank rate policy
       Open market operation
       Variation in reserve requirement
       Credit rationing


2.QUALITATAIVE TOOLS
       Change in margin requirement
       Moral persuasion
       Publicity
       Direct action
Explanation …
QUANTITATIVE TTOLS

Bank Rate Policy:
   It is rate of interest at which central bank advances loans to
       commercial bank. if central bank make some changes in
       bank rate ,it has its effects on the rate of interest charged
       by commercial bank, which in return affect volume of
       loan.
Open market operation:
    Sale and purchase of government securities in the open
     market (stock exchange) by the central bank is called
     open market operation
Continue…
   When the central bank sells securities,
   the amount of money with people and
   banks is reduced, then with less amount
   of cash ,the commercial bank has less
   lending power. in this way the money in
   circulation is reduced. if the central
   bank purchased securities, it means it
   paying out cash, the result is that money
   supply increased.
Continue..
Variation in Reserve Requirement:

    The central bank, by changing the
    reserve requirement, can also control
    credit money. every member bank keep
    a percentage of its deposits with central
    bank. Whenever the central bank desire
    to decrease money supply, it raises the
    reserve ratio, and vice versa
Continue…
Credit rationing:
    Sometimes the central bank fixes the limit up to which it
      can give loans to its member banks. this steps is useful
      to control money supply.

QUALITATIVE TOOLS:

Change in margin requirement:
     Whenever a bank extends loan against a security, it
     keeps a margin,i.e it gives less amount then the value of
     security..when the central bank want to reduce the
     money supply ,it ask the member banks to increase
     margin requirement, in this way amount of loan
     decreases.
Continue…
Moral persuasion:
      The central bank also exercise moral pressure, so that
      the bank don't act against the interest of country.
Publicity:
      Central bank undertake publicity about its policies. this
      also helps to make others banks realize the monetary
      needs of country. each country central bank issue
      weekly statement on money and banking position.
Direct action:
      As the last resort, if some bank refuse to act in
      accordance with the policy of central bank, it take direct
      action against the banks.
THE END…

				
DOCUMENT INFO