Economics and Monetary Policy

Topics: Inflation, Monetary policy, Economics Pages: 3 (1587 words) Published: November 6, 2014

Economic growth is an important macroeconomic objective for any country. Monetary policy has direct relation with economic growth and states monetary policy as the arrangements which are planned to control supply of money in a country. In many countries the basic aims of the monetary policy are to stabilize prices, keep the balance of payment equal, promote the employment and increase in economic development (Osinubi,2006). Since the foundation of State Bank of Pakistan in 1948 it has playing its role to stabilize economic growth through monetary policy. The main purpose of monetary policy in Pakistan as described in the State Bank of Pakistan Act 1956 is to attain steady growth and control on inflation. In search of this mandate SBP determine the monetary policy which is most desirable for attaining stated objectives. From many years Pakistan has been controlling the economy through variation in the stock of money. Whereas evaluating the impact of Structural Adjustment Programme resulted that minimizing stock of money by increasing interest rates would reduce Gross National Product (Laidler, 2013). There is a long run relationship between interest rate and economic growth. Thus in Pakistan interest rate is a valuable determinant of economic growth. In any country monetary policy is used as an instrument through which the government achieves the goals and objectives for economic growth and stability. In Pakistan monetary policy is the role of State Bank of Pakistan. Money supply (M2=currency + demand deposits + time deposits) is an important target variable of monetary policy in Pakistan. The target growth rate of money supply is set through estimated money demand (Qayyum, 2014). From recent some years Monetary Policy of Pakistan has dual objectives which are stability in prices and boosting economic growth. SBP mainly used monetary policy variables to attain desired goals. To control the supply of money and inflation SBP may use contractionary or...
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