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SAMEERA DAR
Roll no # 1542
Monetary Policy
It is a policy of central bank to control the supply of money with the aim of achieving macro economics stability. (Harry Johnson)
Characteristics
Tool used by the national govt. to influence the economy Controls the supply and availability of money Controls the cost of money (interest) Contrasted with fiscal policy
Full Employment Increase in the production Increase in the investment Economic development Stability of Capital Market
Proper Distribution of Wealth Exchange Rate Stability To increase Exports Improvement in standard of living
Avoiding unproductive activities to hedge against the negative impact of inflation or deflation.
Preventing an arbitrary redistribution of wealth and income as a result of unexpected inflation or deflation.
In practice all types of monetary policy involve modifying the amount of base currency (M0) in circulation. This process of changing the liquidity of base currency through the open sales and purchases of (government-issued) debt and credit instruments is called open market operations.
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.
Price level targeting is similar to inflation targeting except that CPI growth in one year is offset in subsequent years such that over time the price level on aggregate does not move.
Monetary Aggregates
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) This approach is also sometimes called monetarism.
MIXED POLICY
In practice a mixed policy approach is most like "inflation targeting". However some consideration is also given to other goals such as economic growth, unemployment and asset bubbles. This type of policy was used by the Federal Reserve in 1998.
SABA KHURSHEED
Roll no # 1541
Banks lending rates are move up & has risen 12.8% June 2008 from 10.9% recorded in April 2008. Due to inflation real return on deposits decreases 17.8% to13.9% in 2008. Growth sustainability demand, stimulating investment a consumption not for driver of economic growth.
Fiscal deficit rose sharply & expended to above 8% of GDP against 4% est target for FY 2008. Govt borrowing from SBP increased & reached at double of Rs 1053billion.
Inflationary pressure in economy increased considerably. At present the risk of inflation overall macro economic stability far greater than the risk to economic growth & needs necessary stabilization measures.
SANA KHALID
Roll No.127
Methods
Rate at which central bank gives loans to commercial banks Central bank charges 10% as bank rate To control inflation central bank increases the rate of interest
2. Open Market Operation
Central bank sells or purchases government securities To remove inflation they sell the government securities Commercial banks will purchase these securities to earn interest
3.Change
in Reserve Requirements
Commercial bank has to keep certain proportion of its deposits in the form of reserves 30% of its deposits to meet the needs of its depositors Commercial banks are advancing excessive loans Central bank Increases the reserve requirements
4.
5. Changes
in Reserve Capital
Commercial bank has to keep 5% of its deposit in the central bank By changing reserve capital, central bank can control the supply of money To remove inflation, they will increase the reserve ratio
6. Credit
Ceiling/Rationing of Credit
Central bank can issue directions Loans will be given to commercial banks up to a certain limit Commercial banks-will be careful in advancing loans
Qualitative Methods
1.
Moral Suasion
Moral request by central bank to commercial banks Loans should not be given for unproductive fields Loans should not be given for speculative purposes and hoarding
2.
Concerned with the policy of central bank against commercial banks Central bank will not advance loan to commercial banks for the sectors which create inflation
3.Direct
Action
4.Publicity
Central bank keeps an eye over the activities of the commercial banks If the commercial banks are found advancing loans which create inflation The central bank can black list such banks
SALMA BASHIR
Roll no # 126
The second half of FY08 particularly proved difficult for Pakistans economy
Monetary Policy Statement
Due to an increase in international oil and food prices, growth moderated, and the combination of growing demand and reduced supply increased inflationary pressures
FY08 FY07 Fiscal deficit (% of GDP) SBP financing ( bln Rs) C.A. deficit (% of GDP) Trade deficit (% of GDP) Exchange rate2 (Rs/US$) Forex reserves ( bln $) YoY M2 growth in % Avg. Inflation % NFNE (YoY) % 20% trim (YoY) % Real GDP growth in % 4.3 -58.6 4.9 6.8 60.4 15.6 19.3 7.8 5.7 6.5 6.8 Target/ Proj H1 4 -62.3 5.0 8.3 13.7 6.5 7.2 3.6 201 3.6 3.7 61.7 15.6 19.9 8.0 7.2 8.7 Year 8.3 689 8.4 15.3 68.3 11.4 15.4 12.0 13.0 17.2 5.8
Fiscal deficit raised to 488.1 billion (8.3 percent of GDP). Balance of payments pressures were increased as the expenditures continued to rise, while revenue growth lagged. 80 percent expenditure overruns are due to delay in pass through of international oil prices and other subsidies and underestimation in current expenditures. Nonfood group accounts for 59.7 percent in the CPI basket Multiple monetary policy measures announced by SBP on May 22, 2008 are: rise in the policy rate by 150 bps to 12 percent increase in CRR to 9 percent floor on banks savings/PLS deposit and L/C margin on all imports excluding oil and selected food products at 35 percent.
rise in interest rate resulted in declining of aggregate demand through consumption or investment expenditure. demand for goods and services as measured by real GDP less net exports raised from 5 percent to 7.2 percent growth in supply of goods and services as measured by the real GDP slowed down to 5.8 percent from 6.8 percent To meet the liquidity requirements banks started reducing their surplus holdings of government securities i.e. commercial banks holdings of government securities over and above SLR requirement
NSIBA WARIS
Roll no # 139
Willingness of banks
The open market operation will not be successful if the commercial banks are not really interested in it so the banks are willing to absorb securities.
Suggestions
The commercial banks should maintain only a minimum cash reserve and depend upon the central bank for obtaining reserve. The central bank requires that the quantity of money should be increased or decreased to influence the price level.
The bank rate policy should effective only when the lending
rates of commercial bank are affected by changes in bank rate.