GROUP MEMBERS Ch Umer Mehmood 14117 M Umer

GROUP MEMBERS Ch Umer Mehmood 14117 M Umer Hayat 14198 M Bilal Kayani 14116 Rehman Baig 13142 Ayyaz Bashir 13217

Monetary policy What is monitory policy? The part of the economic policy which regulates the level of money in the economy in order to achive certin objectives In Pakistan the SBP controls the monitory policy. It is announced twice in a year through which SBP control the flow of money in the economy

OBJECTIVES OF MONETARY POLICY To achive price stability by controlling inflation and deflation To promote and encourage economic growth of the economy To ensure the economic stability at full employment or potential level of output Ensure stability in the foreign exchange rate

Main instrument of monetary policy Open market Operation Bank rate policy Tools Other qualititive Measure Cash reserve ratio Statutory liquidity ratio

Monetary Policy Over View 201011 GDP growth rate at 3. 7% for 2009 which was predicted to be 4. 4% Inflation rate touched 15. 5% because fo easy monitory policy and in July 2012 it decreased to 11. 3% The bench mark Interest is 14% in july 2011 and 9. 5% in oct 2012, which also decline.

Evaluation of the above Monetary measures Economy came back on track with growth rate moving above 2% Economy remained in recession throughout the turbulent times of the world The economic activities are on a roll The inflation however has been climbing higher and higher, but with the current growth rate of the economy, it can now be controlled

Tools: General Controls. (Quantitative) Selective Controls. (Qualitative)

Quantitative : Open market operations. Reserve requirements. Bank rate. Statuary liquid ratio. (SLR) Repo rate. Reverse repo rate. (RRR)

Qualitative: Moral suasion. Consumer credit control. Direct action.

Goals of monetary policy There are 5 basic goals of monetary policy Stability in the price level (low inflation) High employment Economic growth Stability in the interest rate Stability in the exchange rate

Open Market Operation It refers to the buying and selling of Govt. securities in the open market. During inflation SBP sells securities in the open market which leads to transfer of money to SBP. Thus money supply is controlled in the economy.

Deficit Financing It means printing of new currency notes by State Bank Of Pakistan. If more new notes are printed it will increase the supply of money thereby increasing demand prices. Thus during Inflation, SBP will stop printing new currency notes thereby controlling inflation.

Issuance of New currency

PROS AND CONS OF MONETARY POLICY

pros he main purpose of a contractionary monetary policy is to slow down the rampant inflation that accompanies a booming economy. The government uses several methods to do this, including slowing its own spending. The Fed can raise interest rates, making money more expensive to borrow. Slowing inflation by reining in economic

cons Production is reduced in the economy as a byproduct of slowing the economic engine. More expensive investment capital and a reduced demand for products and services are the culprits. Once companies gear down production, it can take years to ramp it up again.