Regulation of consumer credit if there is excess

Regulation of Consumer Credit:
If there is excess demand for certain consumer durable
leading to their high prices, central bank can reduce
consumer credit by increasing down payment, and reducing
the number of instalments of repayment of such credit.

Moral Suasion:
• Moral Suasion means persuasion and request. To address
inflationary situation central bank persuades and request
the commercial banks to refrain from giving loans for
speculative and non-essential purposes.
Direct Action:
• Under the banking Regulation Act, the Central Bank has
the authority to take strict action against any of the
commercial bank that refuses to obey the directions given
by State Bank of Pakistan.

SIGNIFICANCE OF MONETARY POLICY
• Control Inflation or Deflation
• Availability of the Supply of money and Credit
• Integrated Interest Rate Structure
• Effective Central Banking
• Long-Term Loans for Industrial Development
• Creation of Financial Institutions

Control Inflation or Deflation:
Monetary policy is the policy used by the government of a
country to control inflation or deflation in an economy, and
this policies been implemented by the central bank through
the ministry of finance.
Availability of the Supply of money and Credit :
Monetary policy is concerned with the charges in the supply
of the money and credit. It refers to the policy measures
under taken by the government or central bank to influence
the availability, cost and use of money and credit with the
help of monetary techniques to achieve specific objectives.

Integrated Interest Rate Structure:
In an underdeveloped economy, there is absence of an integrated
interest rate structure. There is wide disparity of interest rates
prevailing in the different sectors of the economy and these rates
do not respond to the changes in the bank rate, thus making the
monetary policy ineffective.
Effective Central Banking:
To meet the developmental needs the central bank of an
underdeveloped country must function effectively to control and
regulate the volume of credit through various monetary
instruments, like bank rate, open market operations, cash-reserve
ratio etc.

Long-Term Loans for Industrial Development:
Monetary policy can promote industrial development in the
underdevelopment countries by promoting facilities of
medium-term and long-term loan to the manufacturing
units.
Creation of Financial Institutions:
The Monetary policy in a developing economy must aim to
improve its currency and credit system. More banks and
financial institutions should be set up, particularly in both
areas which lack these facilities

Constraints for Individual Investors
 Lack of Expertise to Understand & Forecast Market
 Lack of time for in-depth Analysis
 Lengthy procedure for documentations

Inability to accurately monitor the changing market
 Inability for diversification of investments

Interest Rates
Amount paid by a borrower for the use of Money.