What is Monetary Policy?
Monetary policy is a process by which the central bank of a country, such as the Reserve Bank of Fiji (RBF), controls and manages the level of money supply in the economy. This is done either by controlling the quantity of money in the economy and/or by influencing the price of money, commonly known to us all as the rate of interest or interest rate.
Objectives of Monetary Policy in Fiji
This article focuses specifically on the RBF’s conduct of monetary policy by influencing interest rates, which we do with two clear end-goals or objectives in mind. The first is to ensure price stability, represented by maintaining average inflation rates at around 3 percent. The second objective is to maintain a level of foreign reserves that is sufficient to cover at least 4 to 5 months of our import
If inflation – which is the annual rate at which the general price level for a typical consumer changes – is high, it reduces the purchasing power of that consumer. It basically means that when wages and salaries remain unchanged fewer of the higher-priced goods and services can be bought. High inflation also erodes the value of people’s savings and firms’ capital.