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Ch Umer Mehmood 14117 M Umer Hayat 14198 M Bilal Kayani 14116

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?

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Ch Umer Mehmood 14117 M Umer Hayat 14198 M Bilal Kayani 14116

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  1. Group members Ch Umer Mehmood 14117 M UmerHayat 14198 M BilalKayani 14116 Rehman Baig 13142 Ayyaz Bashir 13217

  2. 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

  3. 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

  4. Main instrument of monetary policy Tools

  5. Monetary Policy Over View 2010-11 • 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.

  6. Evaluation of the aboveMonetary 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

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

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

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

  10. 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

  11. 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.

  12. 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 and prices. • Thus during Inflation, SBP will stop printing new currency notes thereby controlling inflation.

  13. Issuance of New currency

  14. PROS AND CONS OF MONETARY POLICY

  15. 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

  16. cons • Production is reduced in the economy as a by-product 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.

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