MONETARY POLICY

Monetary Policy



Monetary Policy

Introduction

This paper intends to expound the term Monetary Policy in the light of Bank of England and how Bernanke's approach can be applied to the UK. The monetary policy can be extenuated as the powerful policy which influences the supply and demand for the money through interest rates which is conducted by Bank of England in United Kingdom. The prime target of monetary policy is to promote the economic growth through the low inflation. The Bank of England uses this tool in such a way as where it sees that inflation is hiking with the rapid speed then they can elevate the interest rate to effectively reduce the demand in the economy. Therefore, monetary policy is considered as the most effective and efficient tool to manage and control the money supply through the attainment of monetary stability and low inflation.

In short, the study holds the immense significance as it is the greatest source of information pertinent to monetary policy proposed by Bank of England and the application of Bernanke's approach to the UK.

Discussion

Monetary policy is the process of controlling the supply and demand of money through the use of interest rate with the aim to promote the economic growth and stability. The Bank of England comes amongst the world's oldest central banks operating the monetary policy which primarily operates the financial regulations of the United Kingdom. Moreover, the Bank of England attempts to foster the stable growth of the economy with the help of emasculating the inflation as because if there is high inflation in the economy, it happens to reduce the value of money which consequently limits the purchasing power. It also attempts to affect the gross domestic product and the national employment. In 1998, the Bank of England proposed the Act which includes the goals of bank and settlement of annual rate of inflation up to two percent only. The Bank of England primarily employs the two basic tools under the monetary policy. The first one is interest rate which stabilizes the money supply within the economy at which the bank provides loans to commercial banks as well as to financial institutions and sometimes employs the technique of the directly injecting the money into the economy. The interest rate is the powerful tool which is also termed as the Bank Rate which has the strong impact over the market interest rate charged by the institutions.

Core Purposes of Bank of England

The primary objective of the Bank of England is to maintain a stable monetary as well as efficient financial framework in order to ensure the prosperity of the British economy. The bank has two major purposes which are mentioned as following (Core Purposes, 2013):

Monetary Stability: this is the first and foremost core purpose where the monetary stability means to stable the prices and confidence in the currency whereby the stable prices are met through the decisions of Government's inflation target rate and with the transparent implementation of those decisions in the money ...