Definition:
Monetary Policy refers to the credit control measures adopted by the central bank of a country.
Monetary policy "as policy employing central bank's control of the supply of money as an instrument for achieving achieves of general economic policy."
OBJECTIVES OF MONETARY POLICY
The following are the principal objectives of monetary policy:
Full Employment
Price Stability Economic Growth
Balance of Payments
Exchange Rate Stability
Neutrality of Money Equal Income
Full Employment:
Full Employment has been ranked among the foremost objectives of monetary policy.
It is an important goal not only because unemployment leads to wastage of potential output, but also because of the loss of social standing and self-respect.
Price Stability
One of the policy objectives of monetary policy is to stabilize the price level.
Both economics and favour this policy because fluctuations in price bring uncertainty and instability to the economy.
Economic Growth
One of the most important objectives of monetary policy in in recent years has been the rapid economic growth of an economy.
Economic growth is defined as "the process where by the real per capita income of a country increases over a long period of time."
Balance of Payments
Another objectives of monetary policy since the 1950s has been to maintain equilibrium in the balance of payments.
Exchange Rate Stability:
Exchange rate is the price of a home currency expressed in terms of any foreign currency.
If the exchange rate is very volatile leading to frequent ups and downs in the exchange rate, the international community might lose confidence in our economy.
The monetary policy aims at maintaining the relative stability in the exchange rate.
Neutrality of Money:
Economist such as Wicksted, Robertson has always considered money as a passive factor.
According to them, money should play only a role of medium of exchange and not more than that.
Therefore, the monetary policy should regulate the supply of money.
Equal Income Distribution:
Many economists used to justify the role of the fiscal policy is maintaining economic equality. However in recent years economists have given the opinion that the monetary policy can help and play a supplementary role in attaining an economic equality.