Objectives Of Monetary Policy

Introduction

In this article you will get information about " Objectives Of Monetary Policy " in easy language so that you will be able to understand it. But before that you should know the meaning and concept of monetary policy because this will help you in understanding the further topics clearly. 

What is Monetary Policy? 

Monetary policy is an economic policy that manages the size and growth rate of the money supply in an economy. It is a set of actions to control nations overall money supply and achieve economic growth.It is a powerful tool to regulate macroeconomic variables such as inflation and unemployment. Monetary policy is the step taken by the country's central bank to control money supply for economic stability.

These policies are implemented through different tools, including the adjustment of the internet rates, purchase or sale of government securities, and changing the amount of cash circulating in the economy. The central bank or a similar regulatory organization is responsible for formulating these policies. 

Objectives of Monetary Policy

The primary objectives of monetary policies are the management of inflation or unemployment and maintenance of currency exchange rates. Central banks use various tools such as interest rate adjustment, change reserve requirements, open market operations etc. to implement monetary policies and to achieve its objectives. 

1. Inflation :- 

Monetary policies can target inflation levels. A low level of inflation rate is considered to be healthy for the economy. If inflation is high, a Contractionary policy can address this issue. Central bank use various tools to manage the inflation rate like by increasing or decreasing the amount of money in the economy. 

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2. High employment:-

Monetary policies can influence the level of unemployment in the economy and create high employment. In modern economy, high rate of unemployment does not help country in growth and development because youth are not employed and they can't share their ideas for country development. For creating high employment central bank provide loan to productive sectors, small and medium entrepreneurs and special loan scheme to unemployed youth. An expansionary monetary policy generally decreases unemployment because the higher money supply stimulates business activities that lead to toh expansion of the job market. 

3. Regulation of money supply in the economy:-

Monetary policy is designed to regulate money supply in the economy by increasing or decreasing the amount of credit in the economy. By issuing more loans , central bank increase money supply in the economy and by giving fewer loans to the public central  bank can limit the supply of money.

4. Currency exchange rates:- 

Using its fiscal authority, a central bank can regulate the exchange rates between domestic and foreign currencies. For example, the central bank may increase the money supply by issuing more currency. In such a case, the domestic currency becomes cheaper relative to its foreign currency. 

5. Promoting economic growth :-

The monetary policy also aims to provide credit to country for economic development. Central bank provide credit to backward sectors so that these sectors use this credit for development of its own as well as for development of country.