Monetary policy

Report
By:
Adesokan Mariam
Mek-11a
Monetary policy

Monetary policy or credit policy is the process by
which the monetary authority of a country controls the
supply and availability of money, often targeting a rate
of interest for the purpose of promoting economic
growth and stability.
It employs a variety of methods to control outcomes
like inflation, economic growth, currency exchange
rates and lower unemployment.
Contractionary or Tight Policy is the policy of decreasing
the money supply and increasing interest rates to dampen
the economy by discouraging bank loaning.
Problem : Inflation
Measures :
• Central bank sells securities through open market
operation
• It raises CRR & SLR(Statutory liquidity ratio) bank rate
Tools of Monetary Policy

 There are four basic tools or instruments of monetary
policy which can be used to achieve economic &
price stability by influencing aggregate demand or
spending in the economy. These tools are: Open market operation.
 Changing the bank rate.
 Changing the cash reserve ratio.
 Undertaking selective credit controls.
Monetary decisions in Ukraine today takes into account a
wide range of factors such as:
 Short term interest rates
 Long term interest rates,
 Exchange rates,
 Credit quality,
 Bonds & equities (corporate ownership & debt),
 Govt. vs. Private sector spending/savings,
 International capital flows of money on large scale.
National bank of Ukraine monetary policy indicators
Monetary base

Period
Monetary base
currency in
circulation
1
2
3
2008
2009
2010
2011
2012
Including
transferable
deposits to transferable
other
deposits
depositto other
taking
sectors
corporations
4
outstanding amounts at end of period,
in millions of hryvnias
186,671
167,538
18,623
194,965
170,536
23,183
225,692
200,092
24,404
239,885
209,565
29,185
255,283
222,786
31,158
5
510
1,246
1,195
1,135
1,340
Importance of Monetary Policy in
Ukraine economy

 It regulates currencies and reserves.
 Manages the monetary and the credit system.
 Maintains the par value of domestic currencies.
 Promotes and maintains a high level of production,
employment and economic growth.
 Ensures balance of equilibrium.
 Creates full employment.
 Regulates neutrality of money.
 Ensures equal income distribution.
Problems of Monetary Policy in
Ukraine economy

 The growth of money supply emission
 Delaying the measures to rein in inflation
 Using bonds as a major source of financing the
budget deficit
 Reducing the surplus trade balance
 Slowdown in GDP growth
 The imbalance of public finances
Types of monetary policy

The distinction between the various types of monetary
policy lies primarily with the set of instruments and
target variables that are used by the monetary
authority(NBU-National Bank of Ukraine) to achieve
their goals.
Types of monetary policy
Monetary policy
Target Market variable
Long term objective
Inflation Targeting
Interest rate on overnight
A given rate of change in
debt
the CPI
Price Level targeting

Interest rate on overnight
A specific CPI number
debt
Monetary Aggregate
Fixed exchange rate
Gold standard
The growth in money
A given rate of change in
supply
the CPI
The spot price of the
The spot price of the
currency
currency
The spot price of gold
Low inflation as measured
by the gold price
Mixed policy
Usually interest rates
Usually unemployment
+CPI change
Current issues of monetary policy
in Ukraine

Monetary policy is currently a highly politicised issue
in Ukraine. It is necessary to distinguish three fields: the
stance, the instruments and the use of instruments of
monetary policy.
 Stance: Inflation has certainly slowed down in recent
times, but it is still rather high (14.1%). Inflation
expectations are even higher (17% according to latest
NBU information).
Conclusions

Policy makers usually call on the NBU to relax its
restrictive policy stance. But a relaxation would create
additional problems (higher inflation, weaker
currency), without contributing much in
supporting the real sector.
The presence of a credit crunch is mainly due to a lack
of confidence, not a lack of liquidity.
Consequently, there are lack of access by several banks
to NBU's loans and it is highly problematic. It is crucial
that all banks are treated in the same way.


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