Economics-For Managers

Monetary Policy can be broadly defined as "the deliberate effort by the Central Bank to influence economic activity by variations in the money supply, in availability of credit or in the interest rates consistent with specific national objectives." The objectives that are achieved through monetary policy are: price stability, exchange stability, full employment and maximum output and high rate of growth. Monetary authorities use open market operations, bank rate policy, reserve requirement changes and selective credit control as instruments to achieve the objectives mentioned above.

But, there are problems in implementing monetary policy. They are: lags in monetary policy, presence of financial intermediaries, contradiction in objectives and underdeveloped nature of money and capital markets. Monetary targeting refers to the practice of formulating monetary policy in terms of target growth of money stock. The basic objectives of the monetary policy of a developing country is to attain a maximum level of sustained economic growth, along with domestic price stability and realistic foreign exchange rates.