Monetary Policy
Monetary Policy & Function Of Tight Monetary Policy In
PakistanBy JOFsMEMBERS ARE:Jawad Ahmed (Researcher, Presenter)Osama
Siddiqui (Research coordinator, Presenter)Syed Faisal Ali (Proof
reader, Presenter)Bilal Mughal (Asst. Researcher)Altaf Ahmed (Asst.
Presenter)
1Monetary Policy Definition: Monetary policy is concerned with
deciding how much money the economy should have or perhaps more
correctly deciding whether to increases or decrease the purchasing
power of money. According to Macconal: Changing the money supply to
assist the economy to achieve a full employment
2HISTORY TheBank of Englandin 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.3TYPES OF MONETARY POLICY Contractionary / Tight
monetary policyTight monetary policy, also called contractionary
monetary policy, tends to curb inflation by contracting/reducing
the money supply Expansionary /Easy monetary policy Easy monetary
policy, also called expansionary monetary policy, tends to
encourage growth by expanding the money supply4Tools of Monetary
PolicyQuantitative ToolsOpen Market OperationsBank RateCash Reserve
RequirementLiquidity ratioSpecial deposit Qualitative ToolsCredit
rationingCredit ceilingMoral persuasionDirect actionAdvertisement
5Targets for monetary policy:Employment, economic growth, and
ination can not control directly, it must choose settings, or
targets, for variables that it can control in order to best achieve
its goals.
In practice, there are two types of targets:Money supply
targets. Interest rate targets.6Targets for monetary policy
7Targets for monetary policy
8Money Supply targeting
9 Various Monetary policy of SBP in different yearsIn 2000-01
With the free fall of the Rupee in mid-September 2000, SBP had to
tighten its monetary policy to defend the exchange rateIn 2001-02
The tight monetary discipline visible in FY01 was perceptibly eased
in FY02. In2002-03 a substantial increase in the annual external
account surplus and the easier monetary stance of the SBP left the
money market wash with liquidity during FY03In 2004-05 During FY04
the thrust of monetary management was towards aligning the market
expectations with monetary policy stance. Initially during FY04
when interest rates were under downward pressure10In 2005-06 April
2005 in response to the headline when inflation reaching at 11.3%,
SBP remains in monetary tightening phaseIn 2006-07During July-April
14, net credit to private sector grew by Rs266.4 billion (or 12.6
%) against Rs 339.7 billion (or 19.8 %) in the corresponding period
of FY05 Despite liquidity in the systemIn 2007-08 SBP will be
closely monitoring the economic developments and outlook for FY07
and will take appropriate actions as and when required in pursuit
of maintaining the objective of price stability without prejudice
to economic growth.
Various Monetary policy of SBP in different years11In 2008-09The
tight monetary policy was continued by SBP under the macroeconomic
stabilization programme and discount rate was raised by 200 bps on
13 November 2008 resulting in cumulative increase of 300 bps.In
2009-10 The overall level of risk and uncertainty in the economy
has increased and the pressure on the fiscal position, has
escalated and growth in the real economy is limited. Striking a
balance between monetary and financial stability SBP has decided to
support the recovering real economic activity Therefore, effective
25th November, 2009, the SBP policy rate will be lowered by 50 bps
to 12.5 percent Various Monetary policy of SBP in different
years122013-14 In the monetary policy statement of February 2013,
the SBP highlighted two main challenges for monetary policy: to
manage the balance of payment position and to contain the possible
increase in inflation. A cumulative decline of 450 basis points in
the policy rate of SBP since the beginning of FY12 has played a
role in this uptick. Moreover, an analysis of the balance sheets of
the main sectors supports this assessment. In conclusion, given the
risks to the balance of payments position, the Central Board of
Directors of SBP has decided to keep the policy rate unchanged at
9.5 percent.
Various Monetary policy of SBP in different years132014 (March)
Almost all major economic indicators have moved in the desired
direction over the past few months. Inflation has come down and
growth in Large Scale Manufacturing (LSM) has been strong.
Similarly, the fiscal deficit has been contained during the first
half of the of concern for some time, have increased noticeably. In
conclusion, given the risks to the balance of payments position,
the SBPs Board of Directors has decided to keep the policy rate
unchanged at 10.0 percent. fiscal year while the private sector
credit has increased. Moreover, reflecting positive sentiments
prevailing in the market, the fiscal authority has been able to
borrow long term and rupee has appreciated against the US dollar.
Above all, the foreign exchange reserves of SBP, a key source
Various Monetary policy of SBP in different years14Conclusion
SBP has encountered difficulties to targeting the inflation,
economic growth, employment and interest rate objectives. but still
there are certain difficulties which are a huge hindrance in the
way of Economic Policy. so SBP can control all hurdles with some
suitable policies.. (a) improve its capacity to forecast liquidity
conditions and actively preempt inflationary pressures (b) develop
a greater understanding of the channels of transmission of monetary
policy (c) have an increasingly transparent policy framework15
THANKS FOR YOUR SUPPORT
ASSALAM-O-ALAIKUM
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