Monetary Policy of Pakistan

Topics: Monetary policy, Inflation, Central bank Pages: 22 (6403 words) Published: May 2, 2011


Saira Yoususf…Roll # 18
Mehwish Khalil…Roll # 14
Salman Ahmed…Roll # 09
Farhan Ahmed…Roll # 23
Nasir Hanif…Roll # 49
Zaid Munir…Roll # 46

Presented to:

Presented by:
Saira Yousaf…roll no. 18
Mehwish Khalil…roll no.14
Salman Ahmed…roll no. 09
Farhan Ahmed…roll no. 23
Nasir Hanif…roll no.49
Zaid Munir…roll no.46

The most important acknowledge is to our Lord Most Merciful Most Wise by Whose mercy we were able to begin this project, His Mercy is such that unworthy slaves like ourselves are given the ability to work hard and to be grateful towards all He has given us.

Allah states in the Quran:

"Then remember Me; I will remember you.
Be grateful to Me,
And do not reject Me"

(Ch#2: V# 152)

We would like to express our love, gratitude and sincere regards to the following Person to whom we are grateful for His support and help without which we would not have been able to make this Project.

May Allah Almighty accept our humble!


Our Vision

To transform SBP into a modern and dynamic central bank, highly professional and efficient, fully equipped to play a meaningful role,on sustainable basis, in the economic and social development of Pakistan

Our Mission

To promote monetary and financial stability and foster a sound and dynamic financial system, so as to achieve sustained and equitable economic growth and prosperity in Pakistan.

Defining monetary policy:

“Monetary policy is a tool through which the government affects the economic variables by controlling money supply or interest rates.” “Monetary policy in Pakistan, in line with SBP Act, has been supportive of the dual objective of promoting economic growth and price stability.”

Monetary policy is a policy tool used by government operated during a fiscal year. A fiscal year is a period in which the government issues monetary policy statement, which usually covers one year period and is denoted by FY. Monetary policy used tools as a part of policy measures through which it can change either interest rates or money supply or both. Thus in order to control money supply following tools/ measures are adopted: * Cash Reserve requirement ( CRR) + Statutory liquidity ratio ( SLR) * Open market operations (OMOs)

* Bank rate policy (discount rate)
* Margin requirement
* Moral suasion

The tools are used to achieve the basic internal and as well as the external objectives:

Internal objectives:
* Price stability
* Economic growth

External objectives:
* Stable Exchange rates
* Positive Current account
Current account :
Refers to or includes imports and exports of tangible goods as well as intangible services plus net foreign remittances

Exchange rate policy:
Exchange rates further carry two objectives :
* Maintaining economy’s international competitiveness
* Price stability

Types Of Monetary Policies: key aspects

Expansionary (loose) Monetary policy:
* Increase in money supply
* Lower interest rates
* The objective of expansionary monetary policy is to expand the economy, accelerate growth. * Lower interest rates will help capital investment as cost of borrowing decreases. * Exchange rate will also depreciate, exports will increase relatively. * Employment will increase and so GDP of the economy will be increased.

Contractionary (tightening) Monetary Policy:
* Reduction in money supply.
* Increasing interest rates.
* The objective of contractionary monetary policy is contract economy and decelerates the growth. * With higher interest rates capital investment decreases. * Exchange rate appreciates and imports become cheaper. * Employment decreases and thus GDP also decreases.


References: :
In the end we really thank THE STATE OF PAKISTAN (Lahore) for allowing us to visit there and providing us with the appropriate knowledge that we required.
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