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Conduct of Monetary Policy in Kuwait - Essay Example
Monetary policy has become a primary tool which is utilized by nations in order to correct the imbalances existing within the economy (Monetary Policy 2). This stabilization policy is often carried out by a country's Central Bank. In the case of Kuwait, the CBK (Central Bank of Kuwait) is tasked to draw and implement appropriate monetary policy while also overseeing the health and well-being of the nation's local banking and financial unit system.
In order to accomplish these broad goals, CBK has been adept in controlling the level of the domestic money supply and different interest rates. During the fiscal year 2005-2006, the broad definition of money supply or M2 amounts to KD14524.7 which represents a double digit increase of 17.2% from its previous level. This growth represents the ballooning of both quasi-money (18.6%) and narrow money (13.5%). The increase in money supply is attributed to the increase in both CBK's net foreign assets by 31.1% and the net foreign assets of local banks by 14.4% (Annual Report 2005-06 15).
The strict monitoring of interest rates is primarily attributed to CBK's efforts in "ensuring their consistency with the domestic economic and monetary developments (Annual Report 2005-06 16)" and "their alignment with trends in major currencies (Annual Report 2005-06 16)." In general, this is to enhance the competitiveness and attractiveness of Kuwaiti dinar relative to foreign currencies. ...