Instruments of Monetary Policy

The monetary policy is aimed at the implementation of measures undertaken by the government in the sphere of monetary and credit relations with a view to regulating economic processes. Its coordinator is the central bank. The policy itself is carried out in two stages. The first stage - the central bank affects the parameters of the monetary sphere. The second stage - the corrected parameters are transferred to the production sphere. The result of effective implementation of these steps will be the sustainability of economic growth rates, a relatively low unemployment rate, the stability of the price level and a characteristic equilibrium of the state balance. The priority in achieving improvement in the economic state of any state is the stability of the price level.

The main instruments of monetary policy should influence all financial processes in the state as either direct (or administrative) or indirect (or economic) levers. This should be manifested in the state control of such a basic financial indicator as the country's balance of payments .

Administrative instruments of monetary policy have the form of prescriptions, directives and instructions that must come from the Central Bank and regulate limits on both interest rates and the issuance of loans. Control over the interest rate limit is carried out by determining the limit value of loan interest, as well as the deposit interest rate and the rate on savings deposits.

Limitation of the volume of operations on loans provides for the establishment of the upper limit value of credit emission. This concept is known and under this name - "credit ceiling". In other words, the total amount of loans that is provided by the banking sector determines this credit ceiling. The same restrictions on the volume and rate of growth of loans are established for all commercial banks. Sometimes the credit limit is set only for some sectors of the economy and is called selective credit control. To this method of regulation is the limitation of limits on the accounting of bills and the limitation of the credit for consumption.

Direct instruments of monetary policy are quite effective during the crisis of the credit system, as well as under the underdeveloped domestic financial market. Their main drawback is facilitating the outflow of money into the "shadow" and abroad.

Indirect instruments of monetary policy include: changes in the discount rate, the setting of required reserves, as well as open market operations.

One of the first methods involved in the regulation of monetary relations is considered to be a change in the discount rate. Its essence is to influence the central bank on the liquidity of other banks and the total monetary base. At the same time, under liquidity, it is necessary to understand the ability of banks of different forms of ownership to repay all of their financial obligations in a timely manner.

The main instruments of monetary policy, allowing to control bank liquidity, include the determination of the amount of mandatory reserves. These reserves are necessary to guarantee the payment of deposits to customers in the event of a bankruptcy of the bank. The Central Bank establishes a certain number of standards for mandatory reserves. For example, to increase the population's savings, the central bank sets lower rates for deposits with a short deposit period and higher rates for demand deposits.

The described indirect monetary policy instruments have a significant impact on the scale and structure of lending operations. Their advantage is an effective impact on the object of regulation, the absence of occurrence of disproportions in economic processes under their influence.

Proceeding from the above, it can be concluded that all instruments of monetary policy should serve as levers of economic impact to achieve a positive macroeconomic effect.