1. Pakistan ‘s monetary policy
Presented by:
Ambreen Jaseem
Farooq Anjum

2. outline 1 2 3 4 5 Brief introduction Reserve requirement Interest rate
Open market policy 4
Brief conclusion 5

3. Brief introduction
Definition: government actions to increase or decrease the money supply and change banking requirements and interest rates to influence banker’s willingness to make loans.

4. Brief introduction ↓ the supply of money
Government, central bank, monetary authority ↓
the supply of money
availability of money
cost of money
rate of interest
Objective: the growth and stability of the economy

5. Contractionary policy: Decrease the total money supply,
Brief introduction
Expansionary policy:
increase the total money supply,
combat unemployment,
lower interest rates
Contractionary policy:
Decrease the total money supply,
Combat inflation,
Raise interest rates

6. Tools of monetary policy
Reserverequire-ment
Interest
rate
Open
market
policy

7. (or Required Reserve Ratio)
Reserve Requirement
(or Required Reserve Ratio)

8. Definition
The reserve requirement (or required reserve ratio) is a bank regulation that sets the minimum reserves each bank must hold to customer deposits and notes.

9. Reserve Requirement Changes Affect the Money Stock
Increasing the reserve requirement
Reducing the volume of deposits
Reducing the money stock and raises the cost of credit

10. Part 2: Effects: Reserve Requirement Changes Affect the Money Stock
Decreasing the ratios
Expansion of bank credit and deposit levels and a decline in interest rates

11. Pakistan has raised its reserve requirment ratio ten times in 2007.
Situation in Pakistan
Pakistan has raised its reserve requirment ratio ten times in 2007.
8.5% % % % % % % % % % %

12. Effects To maintain the stability of the value of the currency
To control the currency flow, restrain inflation
Effects
To promote the economic growth.

13. The importance of interest rate in money policy
1.Interpreting the term structure
2.Interpreting the term structure

14. The influnce of changes of interest rate

16. Pressure of foreign exchange
Inflation
Investment
Consumption
Pressure of foreign exchange

17. Discount rate and rediscount rate
discount rate ：a kind of interest rate.when individuals or industries exchange the commercial paper （商业票据）for cash with the commercial bank before its due date, the bank will take off some interest from the amount of money the commercial paper represents and the individuals or industries get the rest of money. And the interest rate the bank uses is called the discount rate.
something to do with time value of money

18. What’s the time value of money?
2007
2 bars of chocolate
10 yuan
2008
only 1 bar of chocolate
10 yuan
As time goes by ,the value of money decreases.----
-the so called time value of money

19. How the discount rate influences the value of money?
10 yuan＝10*(1+10%)=11 yuan
(2007) (2008)
9.1yuan＝9.1*(1+10%)=10yuan
(2007 ) (2008)
10 yuan ＝10*(1+10%)(1+10%)=12.1 yuan
(2007) (2009)
In 2007,we can buy 2 bars of chocolate with 10 yuan , while in 2008, we have to pay 11 yuan for the same 2 bars of chocolate. the value of money actually decreases↓

20. Rediscount rate Central bank Individuals or industries
Commercial banks
Central bank

21. rediscount rate
today
mainly refers to the interest rate the central bank charges commercial banks when they borrow money from the central bank.

22. The function of rediscount rate
commercial banks’ interest rate on loan↑
individuals’ tendency to borrow money ↓
cash flow in society↓
investment of individuals and industries ↓
economy get controlled

23. some figures of China’s rediscount rate from 1993 to 2003.
10.8
1994
1995
10.44
1996 9
1997
8.55
1998
4.59
1999
3.24
2000
2001
2002
2.7
2003

24. Open Market Operation

25. Outline Definition of open market operation
Classification of open market operation
Importance of open market operation
Specific operations and Impact of open market operation—how is open market operation conducted
China’s open market operation in 2008

26. What is open market operation?
Open market operations are the means of implementing monetary policy by which a central bank controls its national money supply by buying and selling government securities, or other financial instruments. Monetary targets, such as interest rates or exchange rates, are used to guide this implementation.

27. Importance of open market operation
controlling the money supply
achieving and maintaining a fixed exchange rate with relation to some foreign currency
guiding the trend of interest rates in the currency market

28. Central Bank Bill
Central Bank Bill is short-term bond issued by The People’s Bank of China to retrieve the fundamental currency. The expiration of Central Bank Bill is characterized as handing the fundamental currency out.

29. Pakistan’s open market operation in 2008
The principal guidance is to control the inflation and
1.preventing money supply from increasing too rapidly
2.quickening the revaluation of foreign exchange rate
3.raising the interest rates

30. conclusion
An independent and effective monetary policy is essential for effective economic management in Pakistan.

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