Monetary Policy

 

Monetary Policy and its types

Monetary policy is a set of measures taken by the central bank to stabilize the economy (strengthening national finances, accelerating economic growth, lowering prices, and so on). It is part of a macroeconomic policy, implemented using a variety of methods and tools, depending on the objectives.

In developed countries monetary policy should work to stabilize and maintain a fair balance in the economic system. But in the case of developed countries, monetary policy must be strong to meet the needs of the growing economy by creating favorable conditions for economic growth. Monetary policy can be strategic, medium and strategic. Under strategic or key objectives the following activities are very important.

- Increased employment among people;

- General price standard;

- Maintaining inflationary processes;

- Accelerate economic growth;

- Increase in production prices;

- Alignment (estimation) of state balance payments.

In contrast, medium-term goals are achieved by changing interest rates and the amount of money that is distributed. In this way, it is possible to adjust current demand for goods and reduce (increase) supply. The key is to influence the quality of pricing policy, attract investment, increase employment and increase productivity. At the same time, it is possible to maintain or renew the merger in the money market (commodity);

Strategic objectives are short-term. Their job is to accelerate the achievement of the most important goals - medium and strategic:

- Monitoring of funding;

- Interest rate control;

- Exchange rate control.

Types of Monetary Policy

Each country chooses its own type of monetary policy. It can vary, depending on external circumstances, economic situation, product development, employment and other factors. The following types are categorized:

1. Self monetary policy

The monetary policy (its second name means "cheap monetary policy") is aimed at revitalizing various sectors of the economy by controlling interest rates and raising inflation. At the same time, the Central Bank performs the following functions: - Conducts transactions in government securities. All transactions are performed in an open market, and transfers are transferred to bank accounts and personal accounts. Such actions allow to increase the value of money supply and improve the financial viability of banks. As a result, interbank loans are in high demand;

- Reduces bank lending rates, which significantly increases lending opportunities in various sectors of the economy;

- Reduce interest rates. As a result, commercial banks gain access to highly profitable loan terms. At the same time, the loan amount has been transferred to the people with favorable terms and attracts additional funds in the form of deposits.

2. Rigid monetary policy

A strong monetary policy (its second name is "a monetary policy") is intended to set various barriers, to prevent the growth of money in the mainstream of capitalism - to prevent the processes of inflation. With a strong monetary policy, the Central Bank does the following:

- Increases the bank booking limit. In this way, it reduces the growth of the budget;

- Increases interest rates. For this reason, commercial institutions are obliged to suspend the flow of loans to the Central Bank and reduce the issuance of public loans. The result is pressure to increase revenue;

- Sells government securities. At the same time, transactions are conducted in an open market due to current demographic accounts and stockpiles of commercial and financial institutions. The result is the same as in the previous case - a decrease in the volume of payments.