PAKISTAN ECONOMY

Presented To :
Mam Sumaira Andleeb

Presented BY :
Iqra Mubeen 03
Saira Altaf 12
Amna Safdar 21
DEFINITION

 Control of total credit and money supply in the economy is

called monetary policy.

 According to Prof. Harry Johnson :

"A policy employing the central banks control of the
supply of money as an instrument for achieving the objectives
of general economic policy is a monetary policy."
 TYPES OF MONETARY POLICY

 There are two types of monetary policy:

1) Expansionary policy
2) Contractionary policy

Expansionary policy :
Expansionary policy is focused on expanding or
increasing the money supply in the economy by reducing
the interest rate as well as taxes it is also called loose
policy.
 Contractionary policy :
Contractionary policy is focused on decreasing the
money supply in the economy by increasing the interest
rate as well as taxes and it is also called tight policy.
 OBJECTIVES OF MONETARY POLICY

 Economic Development
 Increase in the Rate of Employment

 Equal Distribution of Credit

 Improvement in Standard of Living

 Price Stability
 QUANTITATIVE MEASURES

 Bank Rate Policy

Bank rate is the official minimum rate of
interest at which central bank lends money to
commercial banks.

 The central bank lends to commercial banks by re-

discounting their bills of exchange.
o Open Market Operations:
Open market operation refers to the purchase
and sale of Government securities by the Central bank in
open market.

 In order to correct the excess demand or inflation, the

central bank sells securities to the commercial banks and
general public.

 In order to correct the deficient demand or deflation, the

central bank purchase securities in the open market.
 Cash reserve ratio:
According to the law, each commercial bank
has to keep a part of its deposits with the central bank is
a ratio known as the cash reserve ratio (CRR).

 In order to correct the excess of demand or inflation

central bank increase the cash reserve ratio (CRR).

 In order to correct the deficient of demand or deflation

central bank decreases the cash reserve ratio.
 QUALITATIVE MEASURES

 Marginal Requirements:
Commercial banks give loan against ‘stocks or
‘securities’. While giving loans against stocks or
securities they keep margin.

 During inflation commercial bank increases the margin

requirement of borrowing thus inflationary situation is
arrested.

 During deflation central bank can encourage borrowing

from the commercial banks by reducing the margin
requirement.
.

 Moral suasion:
Moral suasion means persuasion and request.

 To arrest inflationary situation central bank pursuades

and request the commercial banks to refrain from giving
loans

 To counteract deflation central bank persuades the

commercial banks to extend credit for different purposes.
 Direct Action :
This method is adopted when a commercial
bank does not co-operate the central bank in achieving its
desirable objectives. Direct action may take any of the
following forms:

 Central banks may charge a penal rate of interest over

and above the bank rate

 Central bank may refuse to rediscount the bills

THANK YOU