Overall Monetary Policy of the Government and its Impact on the Macro Economic Objectives
1. Introduction to the Monetary Policy
The Monetary Policy of any country is an important one, as it defines the role and establishment of a central bank within a country and through it attempts to regulate and manage the money supply within an economy in order to achieve specific goals such as
Constraining Inflation or Deflation
Maintaining an Exchange rate
Achieving full employment or economic growth
Affect on the balance of payments
The monetary policy can involve key actions such as
7 Changing certain Interest rates either directly or indirectly through market operations
8 Setting Reserve Requirements
9 Acting as a last resort lender
10 Trading in Foreign Exchange markets
The online encyclopedia Wikipedia has this to say about say about the monetary policy
“Monetary policy is generally referred to as either being an expansionary policy, or a contractionary policy, where an expansionary policy increases the total supply of money in the economy, and a contractionary policy decreases the total money supply”
“Expansionary policy is traditionally used to combat unemployment in a recession by lowering interest rates, while contractionary policy has the goal of raising interest rates to combat inflation (or cool an otherwise overheated economy). Monetary policy should be contrasted with fiscal policy, which refers to government borrowing, spending and taxation”
We would like to give a brief introduction into the monetary policy before analyzing it in a Sri Lankan Context
The discussion would be centrally fixated on money as the subject of this particular topic happens to be about the monetary policy of an economy.
Money has many functions. Some of them are listed below.
As a medium of exchange
A store of Value
A unit of account...