Monatory policy is the process by which the govt, central bank or monatory authority of a country controls

Supply

of money Availability of money Cost of money / rate of interest

CENTRAL BANK : STATE BANK OF PAKISTAN. ESTABLISHED : 1 JULY,1948.

HEAD QUARTER : KARACHI. GOVERNER : YASEEN ANWAR.

COMMERCIAL BANKS OF PAKISTAN

TOOLS OF MONATORY POLICY

1.

QUANTITATIVE METHODS
1. The rate at which the central bank gives loans to the commercials banks 2. Central bank charges 10% as bank rate 3. To control inflation the central bank increases the bank rate 4. To control deflation the central bank decreases the bank rate

1. CHANGE IN BANK RATE POLICY OR REDISCOUNT RATE

2:

OPEN MARKET OPERATION

Central bank purchases or sells Govt. securities To remove inflation they sell the Govt. securities To control deflation they purchase the Govt, securities.

3 :Change in reserve Requirements

Commercial bank has to keep certain proportion of its deposits in form of reserve 30% of its deposits to meets the needs of its depositors In inflation central bank increases the reserve requirements While in deflation the central decreases the reserve requirements

Changes in reserve ratio

Commercial banks has to keep 5% of its deposits in central bank By changing reserve capital central bank can control supply of money In inflation the central bank increases the reserve ratio To remove deflation central bank decreases the reserve ratio

5 : changes in marginal Requirements

Commercial banks do not give loans against leaves They ask for pledges to make To remove inflation the central bank increases the marginal requirements In deflation the central bank decreases the marginal requirements

6: Credit ceiling/Rationing of credit

Central bank can issue directions Loans will be given to the commercial banks up to certain limit Commercial banks will be careful in advancing loans

QUALITATIVE METHODS
1.

Moral suasion
Moral request by the central bank to the commercial banks Loans should not be given for unproductive fields Loans should not be given speculative purposes and hoarding

2:CONSUMER CREDIT CONTROL

Applied during inflation If the central bank wants to control the supply of money The central bank issue directions to commercial banks that loans should not be advance for consumption purposes

3 : DIRECT ACTION

Concerned with policy of central bank against commercial banks Central bank will not advance loan to commercial banks

4 : PUBLICITY

Central bank keeps an eye over the activities of commercial banks If commercial banks are found advancing loans which create inflation The central bank can black list such banks

Dedicated to my honorable teacher

Mr.Mujib ur Rahman M.phil in Economics AWKUM