Monetary Policy Targets:

The instruments of monetary policy can be manipulated in different ways by Central Bank to achieve macroeconomic objectives of full employment, economic growth, price stability, and balance of payment (BOP) equilibrium.

Monetary policy and inflation: The problem of inflation will call for contractionary monetary policy measures:

i. Sales of government securities (under OMO)

ii. Increase of reserve requirements iii. Increase of discount rate

iv. Call for special deposit

All of these will reduce money supply and aggregate demand in the economy and thereby operate to stem the inflationary pressure.

Monetary Policy and full employment: To raise the level of employment and output in the economy will require adoption of expansionary monetary policy measures i.e a reverse of the measures listed above for inflation.