Learn about the key monetary policy objectives and how they impact the economy. Understand the goals of central banks in achieving stability and growth.
Monetary Policy is the exercise of the central bank’s control over the money supply as an instrument for achieving the objectives of general economic policy.It is a policy in an effort to control the country’s economy macroeconomically to achieve a better economy by regulating the amount of money in circulation. A good economy itself can be seen from price stability through a controlled inflation rate.
The difference between monetary and fiscal policy lies in who takes the steps. Monetary policy is implemented by the central bank, while fiscal policy is implemented by the government (Ministry of Finance). The focus of monetary policy is more on regulating money supply and interest rates, while fiscal policy focuses more on the government budget and taxes.
Key Objectives of Monetary Policy: What You Need to Know.
The goal of monetary policy is to create and maintain economic stability. Here are some of the main goals of monetary policy:
1. Economic Stability
Economic stability is a condition in which economic growth occurs in a controlled and sustainable manner. This means that the growth of the flow of goods/services and the flow of money are balanced.
2. Job Opportunities
Job opportunities will increase when production increases. Increased production is usually followed by improvements in the fate of employees in terms of wages and work safety. Improvements in wages and work safety will improve the standard of living of employees and ultimately prosperity can be achieved.
3. Price Stability
Price stability is characterized by the stability of the price of goods over time. Stable prices cause people to believe that buying goods at the current price level is the same as the future price level, or the purchasing power of money over time is the same.
4. International Balance of Payments
The balance of payments can be said to be in a balanced state if the value of exported goods is equal to the value of imported goods. To obtain a balanced balance of payments, the government often implements monetary policy. An example is by devaluing.
5. Maintaining economic stability and growth
Maintaining price stability from the large amount of money in circulation, Increasing employment opportunities, Improving the position of the trade balance and balance of payments, if the country devalues the rupiah currency to foreign currencies.
6. Exchange rate stability.
For countries that have a flexible exchange rate system, the central bank uses monetary policy to maintain the stability of the national currency exchange rate against foreign currencies.