This essay stresses that there are a number of guiding principles like price stability, exchange stability, full employment and maximum output and a high growth rate etc, in framing the Monetary Policy for an economy.
This paper declares that the monetary policy of any country refers to the regulatory policy, whereby the monetary authority maintains its control over the supply of money for the realization of general economic objectives. This involves manipulating the supply of money, the level and structure of interest rates and other conditions affecting the availability of credit. However, in the context of developing economies monetary policy acquires a wider role and it has to be designed to meet the particular requirements of the economy. This involves not merely the restriction of credit expansion to curb inflation, but also the provision of adequate funds to meet the legitimate requirements of industry and trade and curbing the use of credit for unproductive and speculative purposes. The monetary policy of an economy operates through three important instruments, viz. the regulation of money supply, control over aggregate credit and the interest rate policy. Economic growth is dependent on mobilizing savings and directing them into productive channels. In this process, money supply can only play a limited role. However, the role establishes an important connection between money supply, output and price level ...Show more