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The document discusses monetary policy, its objectives and tools of credit control. It explains that the objectives of monetary policy depend on the economic situation, such as maintaining exchange rate stability before World War 1 and controlling inflation later on. There are two types of credit control - quantitative and qualitative. Quantitative tools control the volume of bank credit while qualitative tools discriminate different sources of credit. The document also discusses challenges faced by central banks in controlling credit and provides an overview of Pakistan's monetary policy history and objectives of the State Bank of Pakistan as the central bank.

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42 views2 pages

Assignment4

The document discusses monetary policy, its objectives and tools of credit control. It explains that the objectives of monetary policy depend on the economic situation, such as maintaining exchange rate stability before World War 1 and controlling inflation later on. There are two types of credit control - quantitative and qualitative. Quantitative tools control the volume of bank credit while qualitative tools discriminate different sources of credit. The document also discusses challenges faced by central banks in controlling credit and provides an overview of Pakistan's monetary policy history and objectives of the State Bank of Pakistan as the central bank.

Uploaded by

Laiba Ejaz
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Mariyam rehan

190201(BBA-IV)

Review on Monetary Policy


Monetary policy is is concerned with regulation of supply, costs, credit directions and is affected
by actions of central bank. The objectives at which it aims are different depending on the
economic situation.as before 1st world war exchange rate stability was the goal but later after are
controlling inflation became significant. During great depression, controlling deflation was
important. The main function of controlling credit is to bring inflation and deflation up to a level.
There are two ways to credit control i.e. quantitative and qualitative controls. The quantitative
tools are the general tools of monetary policy which are made to control volume of bank credit in
the economy. However some of the quantitative controls are variable reserve ratios. Liquidity
ratios etc. On the other hand, qualitative controls are selective tools which are used to
discriminate different sources of credit the discrimination can be favoring export over import.
The qualitative controls include moral suasion, publicity, variable margin requirements.
However, central bank do face some limitation while controlling credit. Some of them are that in
UDCs well developed markets are not available .secondly, there is a big section of communities
which is not affected by monetary policy of any type, in many scenarios commercial banks do
not cooperate with central bank.one of main issue is that it is difficult to control use of finance by
borrowers.
In Pakistan’s monetary policy the state bank of Pakistan acts as a central bank by regulating
money and credit for economic growth. Though SBP has faced different scenarios since making
of Pakistan .SBP failed to reach goal of monetary policy from 1947-1958 due to less domestic
savings, lack of market mechanism , inflation increased due to deficit financing and the fiscal
and monetary policies failed to work together. After failure of monetary policy ,the changes in
policy were made for decade in the form of 5 year plan (1955-1960 and 1960-1965).the changes
which were made i.e. liquidity ratio of banks was increased, export bonus scheme came out
effective as there was significant increase in economic growth , price stability etc.However,
changes mase in 1970-1977 didn’t ended well and inflation occurred.
As SBP ,credit controller in pakstan has same objectives and instruments to control volume and
direction of credit. However, not all the instuments of credit control are effective in Pakistan,the
most effective on is varaiable reserve requirements ,under section 36 of act, banks maintain 5%
od emand and time liabilities with them.in addition to this, microfinance bank was established to
lend loans to poor people with or without collateral security,to provide advice to people
regarding investemnts.on the other hand, creditwas restricted to private sectors because
government borrowing
According o the monetary policy statement of the SBP which was issued on 29 january,was tight
to keep order in the prices and the exchange rates to build foreign exchange resrves, it accounted
for 16% increase in foreign reserves,also, it it is not intended t be changed unless material shift in
inflation occurred.however,there was change in statemrnt in 2009 where discount rate was
maintained t 13% while it keeps on reducing in 2011-12.also, till may 2012,currency in
circulation was rs .1.71 trillion,

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