MONETARY

POLICY
Presented by: Hafsa, Mulaika, Areeba, Aimen,
Amna, Tehreem
 BACKGROUND OF PAKISTAN
ECONOMY
1- Partition and Independence (Economic Challenges)
2- Initial Economic Policies (First Five Year Plan)
3- Agrarian Economy (Agriculture Dominance)
4- Industrialization and Services (Textile, Manufacturing, Services sector)
5- Structural Challenges (Energy crisis, Security Concerns)
6- Fiscal and Monetary Policy (Fiscal Deficits, SBP)
7- Global Economic Factors (Trade and Globalization, Remmittences)
8- Socio-Economic Indicators (Population, HDI)
 OBJECTIVES OF THE RESEARCH
1. Understanding SBP Goals:
Explore SBP's objectives, including stability and growth.
Holistic study of policy tools, impacts, and improvements.
2. Analyzing Policy Tools:
Investigate SBP's use of interest rates and reserves.
Evaluate tools' impact on the economy's effectiveness.
3. Assessing Economic Impact:
Examine how policy influences inflation, GDP, and employment.
4. Identifying Improvements:
Analyze past outcomes for refining the policy framework.
5. Contributing to Decision-Making:
Provide insights for informed decisions by stakeholders.
Data Reliability:
LIMITATIONS OF
- Relies on variable economic data.
- Potential gaps or inconsistencies.
THE RESEARCH
Dynamic Variables:
- Economic indicators subject to rapid changes.
- Findings capture a specific time point.
External Factors:
- Unforeseen global events not fully covered.
- Impact of geopolitics and economic conditions.
Complex Interactions:
- Simplifies for clarity; real-world complexity acknowledged.
Scope Limitations:
- Limited universal applicability.
 BACKGROUND OF MONETARY
POLICY PAKISTAN
WHAT IS MONETARY
POLICY?
The process by which the
monetary authority of a
country (usually a central
bank) controls the supply of
money in the economy in
order to control, and promote
economic growth and stability.
STATE BANK OF HOW IS IT
PAKISTAN ROLE? MAINTAINED?
The central bank It is mainted through
(SBP) which has a actions such as inc the
monopoly over the interest rate, or changing
supply of money the amount of money
usually undertakes banks need to keep in
this policy. the bank reserves.
OBJECTIVES OF MONETARY POLICY

To ensure price stability

To encourage economic growth
To ensure stability of exhcange rate of money.

“ THE GOAL OF MONETARY POLICY IS TO ACHIEVE AND MAINTAIN,

PRICE-LEVEL STABILITY, FULL EMPLOYMENT AND ECONOMIC
GROWTH”
 WHAT IS IT USED FOR?
EXPANSIONARY MONETARY CONTRACTIONARY MONETARY
POLICY POLICY

This is when central bank This is when central bank (SBP)

(SBP) lowers the interest rates increases the interest rate in order
in the econoy in order to to reduce the amount of
encourage borrowing and
spending.
discourage saving.
It is mainly use in expansion
It is mainly used in a recession.
Decreases the aggregate demand
Increases the aggregate
in economy to avoid inflation
demand
 TOOLS FOR MONETARY POLICY
Interest Rates: Open Market Operations Reserve Requirements:
Central bank adjusts (OMO): Central bank sets the
interest rates to Central bank buys or amount banks must
influence borrowing sells government hold in reserves.
and spending. securities to control Higher requirements
money supply. reduce lending capacity,
High rates discourage
Purchases increase controlling inflation,
borrowing, controlling
money supply, while while lower
inflation, while low
sales decrease it, requirements stimulate
rates encourage
impacting interest lending and economic
economic activity. rates. activity.
MONETARY POLICY IMPLEMENTATION IN PAKISTAN
Monetary Policy Committee (MPC):
Formulates and approves policies.
Bi-monthly meetings for economic assessment.

Policy Tools:
Interest Rates:
Controlled to influence borrowing and spending.
High rates combat inflation, low rates stimulate activity.
Open Market Operations (OMO):
Alters money supply through buying/selling securities.
Impacts interest rates and liquidity in financial markets.
Reserve Requirements:
Set by the central bank to regulate lending capacity.
Higher requirements control inflation, lower requirements stimulate lending.
Transmission Mechanism:
Process linking policy changes to economic outcomes.
Channels include interest rates, credit availability, and asset
prices.

Global Considerations:
Evaluation of global economic conditions.
Recognition of external factors influencing domestic policy.

Regular Assessments and Adjustments:

Continuous evaluation for policy effectiveness.
Adjustments based on economic indicators and global
dynamics.
 BENEFITS OF IMPLEMENTATION OF
MONETARY POLICY
1. Price Stability:
Control inflation for economic stability.
2. Economic Growth:
Promote growth through stable investment conditions.
3. Employment Generation:
Contribute to job creation and reduce unemployment.
4. Financial Market Stability:
Manage interest rates for market confidence.
5. Exchange Rate Stability:
Contribute to stable global trade conditions.
6. Interest Rate Management:
Adjust rates to influence economic activity.
7. Financial System Resilience:
Mitigate risks for stable financial institutions.
8. Controlled Money Supply:
Regulate money supply to avoid inflation or stagnation.
9. Inflation Expectations Management:
Build confidence for long-term financial decisions.
10. Flexibility in Response to Shocks:
Use policy adjustments to respond to economic
challenges.
 OBSTACLES IN IMPLEMENTING THE
MONETARY POLICY IN PAKISTAN

1. External Shocks: Global events impacting policy effectiveness.

2. Inflation Expectations: Managing high public expectations for inflation
control.
3. Fiscal Policy Coordination: Lack of coordination affecting overall policy
effectiveness.
4. Political Interference: Central bank independence compromised by
political pressures.
5. Structural Issues: Limitations due to structural problems in the economy.
6. Exchange Rate Volatility: Unstable exchange rates complicating policy
implementation.
 SUGGESTIONS AND POLICY
RECOMMENDATIONS
1. Policy Adjustments:
Proactive Interest Rate Adjustments
Enhanced Communication through
Forward Guidance
2. Institutional Changes:
Strengthen Central Bank Independence
Improved Collaboration with Fiscal
Authorities
3. Data and Transparency Enhancements:
Real-Time Data Monitoring
Investment in Economic Research
4. Capacity Building and Training:
Professional Development
Programs
Collaboration with
International Institutions
5. Public Engagement and
Education:
Public Awareness
Campaigns
Financial Literacy Programs