Post on 06-Apr-2018
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MONETARY POLICY FRAMEWORK
IN MALAWI
NOVEMBER 2008
KUNDUCHI BEACH HOTEL- DAR ES
SALAAM
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Overview of Presentation
MONETARY AND FINANCIAL STATISTICS IN MALAWI
Overview of Presentation
Introduction
Objective of Monetary Policy
Monetary target Regime
Monetary Instruments
Challenges
Conclusion
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Introduction
Introduction
The Reserve Bank Act stipulates that monetary policy
in Malawi will be conducted by the Reserve Bank of Malawi.
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Objective of Monetary Policy
Objective of Monetary Policy
Monetary Policy in Malawi is aimed at promoting
economic growth, employment and maintain ace of sustainable balance of payment.
However in recent years the Reserve Bank of Malawi·s focus has mainly been that of maintaining
price stability.
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Monetary Target Regime
In trying to attain its goal of price stability the RBM use control of
money supply as its intermediate target.
M2 is targeted because of monetarist assumption that the cure for
inflation is a monetary one.
MV = PY
Reserve money is the operating target because the central bank
cannot directly M2
M =m* RM
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Monetary Target Regime Cont.
The main objective of money market operation is to meet
quantitative targets of RM, NDA, NFA
RM = NFA + NDA
Ceiling on Net Domestic Assets
If NDA or RM grow strongly, the RBM has to mop up and accept to
offer higher interest rate.
Floor on net foreign Assets
To protect external position
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Monetary Instruments
Monetary Instruments
The monetary instruments that are used to affect reserve
money are Open Market Operations, Discount window facilityor bank rate, Liquidity Reserve Requirement.
1. Open Market Operations
Outright and REPOs- government securities
Reserve Bank Of Malawi Bill
RBM Bond- 5 year
Since 1994 more emphasis has been on the indirect instruments
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Monetary Instruments Cont.
Monetary Instruments Cont.
1. Direct Instruments
Discount Window
The Bank rate is used as reference rate and signal
device.
Adjustment in bank rate influences lending ratesin the economy
Liquidity Reserve Requirement
To force Banks to cut bank on lending
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Challenges
Challenges
RBM needs to have relevant information on future stance of
reserves before engaging in its operation
Liquidity forecasting
Timing of Government Operations
Monetary Policy Transmission mechanism
Considerable uncertainty surrounds the monetary policy
transmission mechanism
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Challenges
Challenges Cont.
Informal banking sector
Currency in circulation is high- thwarts RBMs ability to
conduct monetary policy
Central Bank Independence Periodical recourse to central bank resources