ppt on Monetary policy

2. MACRO
ECONOMICS
Presented To:
Dr Rizwan

3. MONETARY POLICY
PRESENTED BY:
GROUP MEMBERS:
Hamza Zia 13148
Zohaib Yousuf 64210
Ziyad Bin Hasan 11091
Syed Muhammad Ali 12534
Hammad Khan 13181

4. Monetary policy, measures employed by
governments to influence economic
activity,
specifically by manipulating the supplies
of money and credit and by altering rates
of interest.
The usual goals of monetary policy are to
achieve or maintain full employment,
to achieve or maintain a high rate of
economic growth, and to stabilize prices
and wages.
Until the early 20th century, monetary
policy was thought by most experts to be
of little use in influencing the economy.
What is Monetary Policy?

5. Mechanisms of Monetary policy
Asset prices and general
economic conditions are
affected as a result of
monetary policy decisions
Decisions are intended to
influence the aggregate
demand
Interest rates, and amounts
of money and credit in
order to affect overall
economic performance.

6. Tools of Monetary
Policy
Open Market
Operations
Reserve
Requirement
Discount
Rate

7. TYPES OF MONETARY POLICIES
Broadly speaking,
monetary policies can
be categorized as
either expansionary or
contractionary:
Expansionary
Monetary Policy
Contractionary
Monetary Policy

8.  The Bank also reports on the conduct of monetary policy in the Annual
Report.

10. Budget Deficit is Met by Monetary
policies
 The Role of Monetary Policy in Pakistan’s Economic Stability and Growth
 Monetary policy involves the central bank's use of instruments to influence interest rates or
money supply in the economy with the objective of keeping overall prices and financial markets
stable
 The Preamble to the SBP Act 1956 envisages monetary policy to secure monetary stability and
attain fuller utilization of the economy’s productive resources
 In SBP’s view, the best way to achieve these objectives, on a sustainable basis, is to keep
inflation low and stable
 Low and stable inflation, in turn, provides favorable conditions for sustainable growth and
employment generation over time.

11. How does Monetary Policy Work?
 SBP signals its monetary policy stance through adjustments in the policy rate; that is, the SBP Target Rate for the overnight money
market repo rate.
 Changes in the policy rate impact demand in the economy through several channels and with a lag.
 In the first place, changes in policy rate influence the interest rates determined in the interbank market at which financial institutions
lend or borrow from each other.
 The market interest rates are also influenced by central bank interventions in money and foreign exchange markets as well as by its
communication.
 The changes in market interest rates influence the borrowing cost for consumers and businesses as well as the return on deposits for
the savers.
 Lower interest rates encourage people to save less and consume/invest more, and vice versa. Changes in the policy rate also influence
the value of financial and real assets, impacting people’s wealth and thus their spending.
 The adjustment in demand finally affects the general price level and thus inflation in the economy.

12. Transmission Mechanism of Monetary Policy
The process through which changes in the
monetary policy stance affect the aggregate
demand and inflation is termed as the
transmission mechanism of monetary policy.
The transmission mechanism generally
involves uncertain time lags and it is,
therefore, difficult to predict the precise effect
of monetary policy changes on inflation.
Broadly, the monetary policy transmission
works through five channels
i.e. interest rate channel; balance sheet
channel; exchange rate channel; assets price
channel; and expectations channel.

13. Side Effects of Monetary Policy
Monetary policy impacts the money supply in an economy, which influences
interest rates and the inflation rate.
It also impacts business expansion, net exports, employment, the cost of debt,
and the relative cost of consumption versus saving—all of which directly or
indirectly impact aggregate demand.
One of the major disadvantages of monetary policy is the loan-making link
through which it is carried out.
If economic conditions are severe, no expansion of reserves or lowering of the
interest rate may be enough to induce borrowers to take loans.
A second problem with monetary policy occurs during inflation.

14. Major Factors of Inflation in Pakistan
Inflation is a
situation whereby
there is a
continuous and
persistent rise in
the general price
level.
It refers to
collective increase
in the supply of
money, in money
incomes or in
prices.
Inflation is a
condition in which
prices rise and
money value
decreases.
Inflation the real
value of money
i.e. the purchasing
power decreases.

15. Impact of IMF on Monetary policies
This essay
explores the seven
key aspects of the
IMF bailout
Expectations
belied
High Cost of
Delay
Prior Actions for
every Dollar
Prohibitive cost of
money
Tariffs to spike
Constitutional
Independence
under Pressure
Redefining cost of
terror

16. The Advantages of Monetary Policy
1. They encourage higher levels of
economic activity.
2. They encourage a stable global
economy.
3. They promote additional
transparency.
4. They promote lower inflation rates.
5. They create financial independence
from government policies.
6. They are implemented with relative
ease.
7. They can boost exports.