ROYAL MONETARY AUTHORITY OF BHUTAN Research Statistics Division

ROYAL MONETARY AUTHORITY OF BHUTAN Research & Statistics Division (Financial Literacy Program) MONETARY POLICY OF BHUTAN March 15, 2010 GOPAL GIRI Research Officer

Outline 2 Introduction Conduct of Monetary policy Conclusion

Introduction 3 RMA’s functions – Monetary policy targets

Conduct of monetary policy 4 Maintaining of Peg Volume of money & credit – CRR and SLR, RMA Bills, prudential measures

Conduct of Monetary policy (2) 5

Conduct of Monetary policy (3) 9 December 2009 6 a. Alignment of domestic interest rate with India RMA liberalized interest rate in 1997 Targets- promote investment and market b. Government Treasury Bills Monetary policy instrument- Establish Repo/Reverse Repo, bench-mark rates Short term fiscal management tool

Conduct of Monetary policy (4) 9 December 2009 7 Need for effective Rupee management in Bhutan -Correct BOP position with India -Monitor inflows and outlows of Rupees -Maintaining proper account for Rupee in circulation Importance for Bhutan and for all Bhutanese to use Rupee more prudently

Conclusion 9 December 2009 8 Limited Independent Monetary policy- close economies ties with India. Promoting RMA’s defend mechanism to safeguard Peg Arrangement- Indian Rupee management Rupee continue to be a legal tender in Bhutan Current best option for Bhutan to continue with Peg Arrangement

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