This paper offers a comprehensive analysis of the role of central bank in terms of economic performance of the nation. Influence of the political independence of central bank operations in context of achieving its objectives is under review.
In order to achieve economic growth in a country, formation of capital is essential for fresh investments in the economy. Increase in aggregate demand in the country is an important factor in this regard for attracting investment of capital in new projects. Liquidity in the system as well as interest rates should be monitored and regulated on a continuous basis by the central bank to provide good environment for capital investment and consumption which in turn will generate demand for the products. However, the central bank should also ensure that it does not result in overheating of the economy.
Regulating interests and money supply in the economic system is very complicated in the backdrop of technological developments taking place in the world and globalisation of economies.
The independence of the central bank of the county is very important for exercising control over the commercial banks in the country through its monetary policies. The monetary policies need to be complementary to the fiscal policies of the government to achieve its economic objectives. A country with high central bank interference need to introduce reforms to make the institution more independent within the timeframe set for this purpose to improve stability in liquidity and prices.