Monetary and credit policy of National Bank of Kazakhstan

MINISTRY OF EDUCATION AND SCIENCE OF RK

KAZAKH ECONOMIC UNIVERSITY named after T.RYSKULOV

 

 

 

 

 

 

 

 

COURSE WORK

Theme: Monetary and credit policy of National Bank of Kazakhstan

 

 

 

 

Prepared by: Zhubikenov Adil

Group Finance №241

II year student

Checked by: Kebekpaeva Zh. B.

 

 

 

 

 

 

Almaty 2012

Content:

Introduction………………………………………………………………………..3

Chapter 1. The essence of monetary policy……………………………………..

1. Money-credit policy……………………………………………………………
2. Instruments of credit - monetary policy………………………………………..

Chapter 2. Legal Status of the National Bank of the Republic of Kazakhstan..

2.1 Status of the National Bank…………………………………………………….

2.2 Credit system and the monetary policy of the state…………………………….

Chapter 3. Analysis of monetary policy National Bank of Kazakhstan………..

3.1 The monetary policy of the National Bank in this year…………………………

3.2 Forecast of socio-economic development of Kazakhstan for 2010-2014……….

Conclusion…………………………………………………………………………..

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Introduction

 

The purpose of this course work is to assess the role of the National Bank in monetary regulation of the economy of Kazakhstan. The basis for the development and a reliable, stable functioning of the banking system is the formation of a flexible mechanism for monetary policy – monetary economy that allows the state to effectively influence economic activity, control over the activities of banking institutions to stabilize the currency.

Endowed with state emissions law of the National Bank is the conductor of the national policy of economic stabilization, commodity and cash balance. The transition to a market economy requires more efficient and effective implementation of monetary policy at the macro level.

Monetary policy at the macro level action-oriented activities of the National Bank (under the Ministry of Economy and Finance and, if necessary, and other central agencies) to implement national goals. The main object of monetary aggregate performs cash and non-money in the economy. The ultimate goal of this regulation by the National Bank is to provide a commodity-money balance in the economy, stimulating economic growth, stability of national currency, debt settlement.

          The National Bank of Kazakhstan has decided to develop the monetary and credit policy for two years in advance, that is, 2008–2009. In this case, in addition to implementing the main objective, special attention is given to a package of measures to ensure the stability of the banking system. As the reduction of uncertainty the National Bank of Kazakhstan intends to return to the practice development of the monetary and credit policy for three years.

The financial turmoil in the global economy has been demonstrated for the economy of the Republic of Kazakhstan external risks. The fundamental features of economic development that evolved over the past few years have become one of the main factors of vulnerability. Income of primary industries, external borrowing by banks, government spending continued to contribute to overheating of the economy and growth in aggregate demand. Limited instrument for investing in an objective inability of the economy to quickly meet the demand for infrastructure services and real estate in actively growing demand has led to overheating of the real estate market and increase profitability in the construction sector and other services. The real estate market has become the most attractive for investment.

Over the years, the National Bank of Kazakhstan and the Republic of Kazakhstan Agency for regulation and supervision of financial markets and financial organizations took measures to minimize the associated risks in the banking system. In particular, take steps to regulate the quality of loan portfolio, improve the mechanism of minimum reserve requirements, has developed new requirements aimed at a more adequate assessment of credit risk, the formation of provisions and increase the capital of financial institutions, impose restrictions on the inflow of foreign borrowing.

However, emerged on the global financial market problems have led to the manifestation of accumulated risks of the banking system and increase the vulnerability of national economies to external financial shocks. Kazakh banks, for which external financing is an important source of replenishment of the resource base, faced with a lack of current liquidity. Reduction of bank financing led primarily to a decline in construction, as well as reduced activity in other industries.

The subject of study is the formation of the monetary policy of the National Bank of Kazakhstan and its effectiveness.

Object of study - monetary policy of the National Bank of Kazakhstan.

 

 

 

 

 

Chapter 1. The essence of monetary policy

 

1.1 Money-credit policy

 

Monetary (or monetary) policy – a policy of the state, affects the amount of money in circulation in order to ensure price stability, full employment and growth in real output. Implementing monetary policy the National Bank.

Impact on macroeconomic processes (inflation, economic growth, unemployment) is carried out by monetary authorities.

Normally, monetary policy of the Central Bank aims to achieve and maintain financial stability, primarily the strengthening of the national currency and ensuring the sustainability of balance of payments.

Monetary control – a set of specific activities of the central bank to change money in circulation, the volume of loans, interest rates and other indicators of monetary and capital market lending.

Monetary policy is an integral part of a national economic policy. Government economic policy should include measures to address the problems in each block. The Central Bank does its part – monetary policy, he is responsible for its implementation.

The fundamental objective of monetary policy is to help the economy to reach a total production level, characterized by full employment and price stability. Monetary policy is a change in money supply in order to stabilize aggregate output (steady growth), employment and price levels.

State regulation of the monetary sphere may be carried out successfully only if the State through the central bank can effectively influence the extent and nature of private institutions as well as in developed market economies is the latter are the basis for the entire monetary system.

Monetary policy in industrialized countries is considered as a tool for «fine tuning» of economic conditions, both operational and flexible addition of fiscal policy. The current world practice shows that a monetary policy affects the state on money supply and interest rates, and they, in turn – for the consumer and investment demand.

Unregulated activities of commercial banks may lead to cyclical fluctuations in business activity, i.e. in periods of inflation to their advantage to increase the money supply, and during the Depression – to reduce, thus exacerbating the crisis. Therefore, a balanced state policy of regulating the currency. This role is the main coordinating and regulatory body of the whole monetary system of the country carries out the central (issuing) bank.

The main task of monetary policy the central bank – to maintain a stable purchasing power of the national currency and ensuring the flexible system of payments and settlements. At the same time the central bank's policy is one of the most important parts of regulating the economy of the state.

It should be noted that with the help of credit control the state seeks to alleviate the economic crisis, to keep inflation in order to maintain the conditions the state is using credit to stimulate investment in various sectors of the economy.

Source for defining the objectives of monetary and credit policy is the issue of subordinated bonds (subordination) of the various components of economic policy.

It is important to clarify the definition of basic concepts. It is traditional to use the term «monetary policy». Is it, however, the concept of «credit» a simple application to the concept of «money» or the concept has its own content? Is it true so call the considered policy of monetary or should be talking about the monetary and credit policy as relatively independent components of economic policy? To answer this question it is necessary to compare the targets and means of achieving them within the framework of monetary and credit policy components.

The essence of the problem of determining the objectives of monetary policy is reduced to the identification of the specific way in which it provides a monetary policy (to ensure) progress towards the desired result – price stability.

The aim of monetary policy is to ensure that the economy is necessary and sufficient money supply. Another possible definition, virtually synonymous with the previous: The goal of monetary policy is to eliminate the excess or shortage of money in terms of economic needs.

The aim of monetary policy is to regulate the availability of credit on the basis of the objectives of sustainable economic growth. Credit price of money can be controlled through the supply of money. Thus governed by and availability of the loan.

In the monetary policy interest rate on loans (refinancing rate) should provide relief in the form of achieving a certain level (of growth, reduce the amount of) money supply. For monetary policy the main thing – the availability of credit, money supply directly is not the purpose of this policy.

Arsenal of tools of monetary policy is much richer and includes interest rates. Solutions in the field of monetary policy on the economy-wide level may deal exclusively with interest rates.

Solution in one area of the monetary sphere affects all other areas. In connection with this fundamental choice between cash, credit and monetary policy should be conducted on a competitive basis, and the quantitative parameter within the chosen policy is set on the basis of compromise. With the policy chosen by the parties concerning the traffic control cost in the form of money on market principles, is dominant. The other components are subordinate subordinates.

Monetary policy is based on the principles of monetarism and has several advantages over fiscal policy. First of all, it has the agility and flexibility, as well as carried out by the Central Bank, rather than by Parliament, it is largely insulated from political lobbying.

Strengths of monetary policy:

• Speed and flexibility. Compared with fiscal policy, monetary policy can change quickly.

• Weak dependence on political pressure. By its very nature, monetary policy is softer and more conservative politically than fiscal policy. Changes in public spending directly affects the distribution of resources, and tax changes, no doubt, could have far-reaching political implications. Monetary policy, on the contrary. Acts thinner, and therefore it seems more acceptable politically.

• Monetarism. Most economists believe how fiscal and monetary policy effective tools for stabilizing, there are monetarists, who believe that the change in money supply – a key factor determining the level of economic activity and fiscal policy is relatively ineffective.

Negative aspects of monetary policy are that it provides only an indirect impact on commercial banks in order to regulate the dynamics of money supply and therefore cannot directly force them to reduce or extend credits.

It should be noted that monetary policy is implemented as an indirect (economic) and direct (administrative) methods of exposure. The difference between them lies in the fact that the Central Bank either has an indirect effect through the liquidity of credit institutions, or sets limits on the quantity and quality of banks.

Thus, in concluding this chapter, the following conclusions. Monetary policy – a key method of state regulation of social reproduction to ensure the most favorable conditions for the development of a market economy. The main goal of monetary policy is to help the economy in achieving volume production, characterized by full employment, absence of inflation and growth.

1.2 Instruments of credit – monetary policy

 

Refinancing of commercial banks

The tools of monetary policy are, first of all change refinancing, changes in reserve requirements, open market operations with securities and foreign currencies, as well as the introduction of credit restrictions.

The term «refinancing» means the receipt of funds by credit institutions from the central bank. The Central Bank may grant loans to commercial banks and rediscount securities held in their portfolios (usually bills).

Rediscount bills of exchange has long been one of the main methods of monetary policy of central banks of Western Europe. Central banks have certain requirements to have a bill discounted, most of which was the reliability of the debt obligation.

Bills of exchange rediscount rate rediskontirovaniya. This bet is also known as the official discount rate, it is usually different from the rate of the loan (refinance) a negligible amount in the smaller side. The central bank buys the debt at a lower price than the commercial bank.

In case of increase of central bank refinancing, commercial banks will seek to compensate for losses caused by its increase (appreciation of credit) by raising interest rates on loans provided by the borrowers. Ie change in accounting (refinancing) rate directly influences the change in rates on loans to commercial banks. The latter is the main goal of this method of monetary policy the central bank. For example, raising the official discount rate in the period of increasing inflation causes an increase in interest rates on credit operations of commercial banks, which leads to their reduction, as there is appreciation of the loan, and vice versa.

We see that the change in official interest rates affects the credit sphere. First, the difficulty or facilitate opportunities for commercial banks to obtain credit from the central bank influences the liquidity of credit institutions. Secondly, the change in official rates mean more expensive or cheaper loans from commercial banks for customers, since there is a change in interest rates on active lending operations.

Also from the official central bank rate means the transition to a new monetary policy that makes commercial banks to make the necessary adjustments in their activities.

The disadvantage of refinancing with the conduct of monetary policy is that this method affects only commercial banks. If refinancing is used little or not implemented at the central bank, then this method is almost completely loses its effectiveness.

Change in reserve requirements affects the profitability of lending institutions. So, in case of increase in reserve requirements is as if the shortfall in revenue. Therefore, according to many Western economists, this method is the most effective anti-inflationary tool.

The disadvantage of this method lies in the fact that some institutions, mainly specialized banks with minor deposits, are in an advantageous position compared with commercial banks that have large resources.

In the last year or two decades have seen a decrease in the role of this method of monetary control. This is evidenced by the fact that everywhere (in Western countries) there is a reduction of the required reserves, and even its abolition in some types of deposits.

Fall in the rate of cash reserves would increase the money multiplier and, hence, increase the amount of the money supply, which can maintain a certain amount of reserves. If the central bank increases the rate of required reserves, this leads to a reduction in excess reserves of banks and animated reducing money supply. This process happens very quickly. For, once signed by the decision to increase the reserve rules, each bank immediately detects the failure of its reserves. He immediately sells some of its securities, and require the return of loans.

This instrument of monetary policy is the most powerful, since it affects the foundations of the entire banking system. He is so powerful that, in reality it is used once every few years rather than every day, as in the case of operations on the open market

Open market operations

Gradually, the above two methods of monetary regulation (refinance and compulsory redundancy) have lost their priority on the importance of value, and the main instrument of monetary policy became the intervention of the central bank, known as open market operations.

This method consists in the fact that central bank purchases and sales of securities in the banking system. Purchase of securities from commercial banks increases the resources of the latter, respectively, increasing their lending capacity, and vice versa. Central banks periodically make changes to this method of credit control, change the intensity of their operations, their frequency.

Open market operations were first actively used in the U.S., Canada and Britain due to the presence in these countries, the developed market securities. Later, this method of credit control has been universally used in Western Europe.

Thus, open market operations as a method of monetary management differ significantly from the previous two. The main difference – it is more flexible regulation, since the volume of purchases of securities, as well as used in this interest rate may change on a daily basis in accordance with the direction of central bank policy. Commercial banks, given the specified feature of this method should closely monitor its financial position, while preventing the deterioration of liquidity.

Credit crunch

This method of credit control is a quantitative limitation of the amount of loans. Unlike the above methods, regulation, quotas credit is a direct method of influence on banks' activities. Also, credit constraints lead to the fact that businesses borrowers fall into unequal position. Banks tend to lend mainly to its traditional customers, usually large businesses. Small and medium firms are the principal victims of this policy.

It should be noted that, while ensuring support of the policy of deterrence banking and moderate growth of money supply, the government reduces economic activity. Therefore, the method of quantitative restrictions was used not as active as before, but in some countries there has been canceled.

Also, the Central Bank may set different standards (coefficients), which commercial banks are required to maintain the required level. These include capital adequacy ratios of commercial bank's balance sheet liquidity ratios, standards for maximum risk per borrower, and some complementary guidelines. The above standards are mandatory for commercial banks. Also, the Central Bank may establish a non-binding, so-called evaluative standards which commercial banks are encouraged to support at the proper level.

In case of violation by commercial banks banking laws, rules, banking operations, other serious shortcomings in the work that leads to infringement of the rights of their shareholders, depositors, customers, the central bank may apply to them the most severe administrative punishment, until the liquidation of banks.

Obviously, the use of administrative action by the central bank towards commercial banks should not be systematic, and applied in the order of only internally measures.

In addition to the above four basic tools of monetary policy, the state also sometimes uses a secondary selective regulation, which refers to the stock exchange, consumer credit and exhortations.

In order to avoid excessive speculation in the stock market, the state sets prescribed by law «margin», ie percentage of the selling price of a security, which must be paid when buying or cash or, in securities, while another part can be written IOU. Margins improve if they wish to limit speculative buying of stocks and lower if you wish to revive the stock market.

If the state wants to avoid increasing the money supply, it can by all means possible to beat the desire to take a consumer credit: raise the interest rate on it, or prescribe to make interest-free contribution to the central bank is buying the credit card.

State represented by the central bank can affect the banks through verbal persuasion. There may be political statements, the general solutions, simply calls for a particular action. State appeals to the sense of public duty bankers. In its general form can be made warnings about the availability of credit in the future. Sometimes exhortations have had some impact.

Thus, the instruments of monetary policy are, first of all change in refinancing, changes in reserve requirements, open market operations with securities and foreign currencies, as well as the introduction of credit restrictions.

Thus, open market operations as a method of monetary management differ significantly from the previous two. The main difference – it is more flexible regulation, since the volume of purchases of securities, as well as used in this interest rate may change on a daily basis in accordance with the direction of central bank policy. Commercial banks, given the specified feature of this method should closely monitor its financial position, while preventing the deterioration of liquidity.

 

 

 

Chapter 2. Legal Status of the National Bank of the Republic of Kazakhstan