Monetary policy is a set of tools and measures used by central banks to regulate the supply and demand of money in the economy. In developing countries, the objectives of monetary policy are often focused on promoting economic growth, stabilizing prices, and maintaining exchange rate stability.
One of the main objectives of monetary policy in developing countries is to promote economic growth. This is often achieved through the use of expansionary monetary policy, which involves increasing the supply of money in the economy through the use of tools such as lower interest rates and increased lending to banks. By making it easier for businesses to borrow money, expansionary monetary policy can encourage investment and stimulate economic growth.
Another important objective of monetary policy in developing countries is to stabilize prices. This is often done through the use of contractionary monetary policy, which involves decreasing the supply of money in the economy through the use of tools such as higher interest rates and reduced lending to banks. By making it more expensive for businesses to borrow money, contractionary monetary policy can help to reduce inflation and stabilize prices.
In addition to promoting economic growth and stabilizing prices, the objectives of monetary policy in developing countries often include maintaining exchange rate stability. This is particularly important for countries that have floating exchange rates, as fluctuations in the exchange rate can have a significant impact on the economy. To maintain exchange rate stability, central banks may use a variety of tools, including foreign exchange interventions and changes to interest rates.
Overall, the objectives of monetary policy in developing countries are designed to support sustainable economic growth, stabilize prices, and maintain exchange rate stability. By carefully managing the supply and demand of money in the economy, central banks can help to create a stable and favorable environment for businesses and consumers.
The Major Role of Monetary Policy in a Development Economy
Naturally, the economic ends and means and conditions of developed and developing nations are bound to be different, and hence the role of monetary policy should also vary in both cases. But these arguments do not carry much weight. Fusce dui lectus, congue vel laoreet ac, dictum vitae odio. ADVERTISEMENTS: A developing country generally suffers from balance of payments difficulties because of the high propensity to import and limited capacity to export. Thus, similar course of action cannot be appropriated to both types of countries.
Monetary policy in developing countries: The way forward
Therefore, stable exchange rates play a key role in international trade. The conflict tends to undermine the moral capital of a nation. As the domestic currency weakens, imports may decline, exports may increase, and the balance of payments may become favorable. Lorem ipsum dolor sit amet, conse s a molestie consequat, ultrices ac magna. Most countries are experiencing an influx in the importation of secondhand clothes.
Objectives of Monetary Policy (With Conclusion)
Lorem ipsum dolor sit amet, consectetur adipiscing elit. Pellentesque dapibus efficitur laoreet. For this, the Central Bank may raise the bank rate which would reduce the pressure of demand for bank credit by making borrowing costlier than before and this will discourage borrowing for hoarding and speculative purposes. Thus, the problem in an underdeveloped country is to achieve full employment, whereas that, in a developed country is to maintain full employment. They are responsible for the occurrence of trade cycles. Fiscal policy refers to the taxation, expenditure and borrowing by the Government.
Role of Monetary Policy in Developing the Economy of a Country
It is not an end in itself rather a pre-condition for maximum social and economic welfare. Such countries have weak infrastructure, i. ADVERTISEMENTS: Read this article to learn about the major role of monetary policy in a development economy: Monetary policy in an underdeveloped country plays an important role in increasing the growth rate of the economy by influencing the cost and availability of credit, by controlling inflation and maintaining equilibrium the balance of payments. For example, the central bank may increase the money supply by issuing more currency. Thus lack of banking facilities creates number of problems in the way of monetary policy. However, it can also possibly lead to higher inflation.
[Solved] a. Examine the objectives of monetary policy in...
In other words, it should create favourable atmosphere for promoting saving and investment in the country. For example, a conflict or trade off exists between: a Exchange stability and price stability, b Foil employment and economic growth, c Price stability and economic growth, and d Full employment and price stability. The monetary authority should encourage the establishment of branch banking in rural and urban areas. Underdeveloped countries develop serious balance of payments difficulties to fulfill the planned targets of development. Thus, in both these situations, the external exchange stability is achieved without disturbing the internal price stability. Pellentesque dapibus e ec facilisis. This trade-off is weaker or even non-existent in the long run in comparison to that in the short run.
Top 6 Objectives of Monetary Policy
Fusce dui lectus, congue vel laoreet ac, dictum vitae odio. Monetary policy plays a role in reducing such inequality and promoting financial access, financial literacy, and participation. And this must be on cheap rates to keep the burden of the debt low. Monetary policy helps to bring together small, scattered, and unused small financial resources across the country by increasing financial access, participation, and literacy of people, and helps to mobilize them in a way to increase productivity and production. Open market operations The central bank can either purchase or sell securities issued by the government to affect the money supply.
Monetary Policy in Under
From the long-run point of view, the problem of desirable monetary policy reduces primarily to the desirable rate and form of inflation. Fusce dui lectus, congue vel laoreet ac, dictum vitae odio. When there was disequilibrium in the balance of payments of the country, it was automatically corrected by movements. When aggregate demand for money exceeds the aggregate supply of goods a restrictive monetary policy should be adopted. The question as to which price policy should be adopted will ultimately depend on the actual conditions prevailing in the country.
