LOGO Pakistan ‘s monetary policy Presented by: Ambreen Jaseem Farooq Anjum.

LOGO

Pakistan ‘smonetary policy

Presented by:Ambreen Jaseem

Farooq Anjum

www.themegallery.com

outline

Brief introduction1

Reserve requirement2

Interest rate3

Open market policy4

Brief conclusion5


Brief introduction

Definition: government actions to increase or decrease the money supply and change banking requirements and interest rates to influence banker’s willingness to make loans.


Brief introduction

Government, central bank, monetary authority

↓ the supply of money

availability of money cost of money rate of interest

↓Objective: the growth and stability of the

economy


Brief introduction

Expansionary policy: increase the total money supply,

combat unemployment, lower interest rates

Contractionary policy: Decrease the total money supply,

Combat inflation,Raise interest rates


Tools of monetary policy

Reserverequire-

ment

Interest

rate

Open

market

policy


Reserve Requirement

(or Required Reserve Ratio)


Definition

The reserve requirement (or required reserve ratio) is a bank regulation that sets the minimum reserves each bank must hold to customer deposits and notes.


Reserve Requirement Changes Affect the Money Stock

Increasing the reserve requirement

Reducing the volume of deposits

Reducing the money stock and raises the cost of credit


Part 2: Effects: Reserve Requirement Changes Affect the Money Stock

Decreasing the ratios

Expansion of bank credit and deposit levels and a decline in interest rates


Situation in Pakistan

Pakistan has raised its reserve requirment ratio ten times in 2007.

8.5% 9% 9.5% 10% 10.5% 11% 11.5% 12% 12.5% 13.5% 14.5%


Effects

To promote the economic growth.

To control the currency flow, restrain inflation

To maintain the stability of the value of the currency


The importance of interest rate in money policy

1.Interpreting the term structure

2.Interpreting the term structure


The influnce of

changes of

interest rate


1. Inflation

2. Investment

3. Consumption

4. Pressure of foreign exchange


Discount rate and rediscount rate

discount rate ： a kind of interest rate.when individuals or industries exchange the commercial paper （商业票据） for cash with the commercial bank before its due date, the bank will take off some interest from the amount of money the commercial paper represents and the individuals or industries get the rest of money. And the interest rate the bank uses is called the discount rate.

-------something to do with time value of moneytime value of money


What’s the time value of moneyWhat’s the time value of money??

2007 10 yuan 2 bars of chocolate2 bars of chocolate

2008 10 yuan only 1 bar of chocolate

only 1 bar of chocolate

As time goes by ,the value of money decreases.----

-the so called time value of money


How the discount rate influences the value of money?

10 yuan ＝ 10*(1+10%)=11 yuan (2007) (2008) 9.1yuan ＝ 9.1*(1+10%)=10yuan (2007 ) (2008) 10 yuan ＝ 10*(1+10%)(1+10%)=12.1 yuan (2007) (2009)

In 2007,we can buy 2 bars of chocolate with 10 yuan , while in 2008, we have to pay 11 yuan for the same 2 bars of chocolate. the value of money actually decreases↓


Rediscount rate

Individuals or industries

Commercial banks

Central bank


rediscount rate

today

mainly refers to the interest rate the central bank charges commercial banks when they borrow money from the central bank.


The function of rediscount rate

Rediscount rate ↑

commercial banks’ interest rate on loan↑

individuals’ tendency to borrow money ↓ cash flow in society↓

investment of individuals and industries ↓

economy get controlled


some figures of China’s rediscount rate from 1993 to 2003.

1993 10.8

1994 10.8

1995 10.44

1996 9

1997 8.55

1998 4.59

1999 3.24

2000 3.24

2001 3.24

2002 2.7

2003 2.7


Open Market Operation


Outline

Definition of open market operationClassification of open market

operationImportance of open market operation Specific operations and Impact of

open market operation—how is open market operation conducted

China’s open market operation in 2008


What is open market operation?

Open market operations are the means of implementing monetary policy by which a central bank controls its national money supply by buying and selling government securities, or other financial instruments. Monetary targets, such as interest rates or exchange rates, are used to guide this implementation.


Importance of open market operation

controlling the money supply

achieving and maintaining a fixed exchange rate with relation to some foreign currency

guiding the trend of interest rates in the currency market


Central Bank Bill

Central Bank Bill is short-term bond issued by The People’s Bank of China to retrieve the fundamental currency. The expiration of Central Bank Bill is characterized as handing the fundamental currency out.


Pakistan’s open market operation in 2008

The principal guidance is to control the inflation and

1.preventing money supply from increasing too rapidly

2.quickening the revaluation of foreign exchange rate

3.raising the interest rates


conclusion

An independent and effective monetary policy is essential

for effective economic management in Pakistan.

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LOGO Pakistan ‘s monetary policy Presented by: Ambreen Jaseem Farooq Anjum.

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