But the rate of saving being low, the government has to resort to large scale borrowing and deficit financing to cope with the rising investment. But this tendency on the part of private investors can be checked through selective credit control and thereby directing investment into desirable channels. Privacy Policy 8. Appropriate Adjustment between Demand for and Supply of Money, 2. Per capita income is very low i.e., $ 1095. As to the role of monetary stabilisation policy, let me take the example of the euro area. For this, the Central Bank may raise the bank rate which would reduce the pressure of demand for bank credit by making borrowing costlier than before and this will discourage borrowing for hoarding and speculative purposes. Role of monetary policy in the economic development of a country are as follows: 1. Such adjustments can be made quickly, and monetary authorities devote considerable resources to monitoring and analyzing the economy. IT Industry is a service industry that can provide a significant boost to our economic … Similarly, selective credit controls should be adopted to influence the pattern of investment and production by differentiating between the costs and availability of credit to different sectors and industries. Monetary policy can speed up the process of economic development by improving the currency and credit system of the country. The productive and efficient use of investible resources can be better secured by direct controls and control over capital issues. This means optimal investment which promotes economic development and avoids wasteful and unproductive investment. Monetary policy plays an important role in achieving sustained economic growth. Monetary policy in Pakistan is an adjunct of economic policy. Similarly the Central Bank and financial corporations to provide finance to business and industry. However, there are economists who suggest a policy of high interest rates on the following considerations: (a) It will serve as an anti-inflationary measure by restricting borrowing from the banks for speculative purposes and undesirable investments; (b) It will stimulate savings and thus increase the supply of investible sources. For this propose more banks and financial institutions need to be established to provide larger credit facilities and to mobilise saving for productive purpose. In Pakistan’s scenario, we need to broaden the economic base and adopt a growth-oriented policy. Copyright 10. Besides, a low structure of interest rates minimizes the burden of public debt. In short, aim of the fiscal policy should be to make investment on social and economic overheads such as transportation, communication, technical … To reduce the credit creating capacity of the banks further, the Central Bank may supplement it with the sale of government and banks securities, raising the serve ratio and by instituting selective credit controls. 2. conclusion and the policy recommendations. Ordinary least square procedure has been applied. Thus the Central Bank by relying on both the quantitative and qualitative instruments of credit control can limit inflation and help the process of economic development. In general, stabilisation policies can be implemented with the aid of either monetary or fiscal policy. Journal of Economic Cooperation and Development, 38, 2 (2017), 1-26. Prohibited Content 3. The results point to a transmission mechanism in which banks play an important role. Maintenance of stability in the domestic level of prices and exchange rates is an important condition of economic growth. So far a stimulus to savings is concerned, it may be mentioned that the volume of savings is more a function of the level of income rather than the rate of interest. Appropriate Adjustment between Demand for and Supply of Money: 4. The role of monetary policy in economic development. Ahmad et al. À•p|î„O×àX Report a Violation, The Major Role of Monetary Policy in a Development Economy | Economics, Role of Monetary Policy in the Economic Growth of a Country, Monetary Policy in Under-Developed Countries. On the other hand, an increase in the rate of interest will stimulate savings. Monetary policy of Pakistan now for some years has been largely supportive of the dual objective of promoting economic growth and price stability. 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