Monetary policies in are imposed to regulate the emerging market economies and contain economic challenges like inflation and deflation. It discuses the importance of exchange rate expectations for monetary policy decisions in EMEs. Monetary polices refer to those stringent measures that a government, through the Central Bank, applies whenever a country faces inflation or the opposite of inflation which is deflation. Such policies may include; regulating the supply of money in the economy, control of interest rates, change of reserve requirements etc. Such policies assist in stabilizing the economy in different behaviors, for instance when there is a lot of money in circulation, the Central Bank by authority from the government reduces money supply either by increasing interest rates to cause temporary inflationary pressures in the economy.
On the other hand, when an economy is faced with adverse shortage of money, the central bank acts again to encourage money borrowing from banks e.g. by lowering interest rates. By doing so the economy is stabilized thanks to monetary policies. In the recent years governments have made their presence felt in regard to market regulation more heavily than in the other previous years. For instance, in the U.K, the government has intervened in an effort to help minimize the impact arising from the financial crisis and the near economic downturn in a bid to aid in economic recovery and subsequently secure future economic growth. The government intervention has been exercised through spending massive amounts of cash on capital infrastructure projects, investments in innovation and education among others. The main reason to why most nations fail to develop is lack of effective policies that can enable them achieve good economies in the market.
The monetary policies in the emerging market countries have, over many years been supportive of the objective of bringing growth and economic stability in their countries for example the policies in the cypto market. They achieve this goal by focusing on the GDP indicators that are unfavorable and applying the necessary monetary policies that would attend to any shortcomings henceforth. The commonly known application is the expansion of money supply as a strategy of increasing money in circulation so as to curb the problem of money shortage hence increases their markets economies. Other strategies are those of controlling interest rates so as to contain inflation rates thereby controlling GDP. All these efforts by the governments of the Latin American countries and Asian countries show that indeed monetary policies and GDP have a relation regardless of whether the relationship is direct or indirect.
central bank foreign exchange intervention will not influence the short term exchange rate expectations in which the central bank could have wished. Even if the central bank purchases dollars it will not prevent fluctuations in currency rates. It has concluded that foreign exchange interventions may have some effects which were not intended. Dollar purchases by central banks may attract more foreign inflows which may lead to expectations of stronger exchange rates in near future. The article talks about the importance of monetary policies in the emerging markets economies. Monetary policies play a vital role for maintaining the general economy in the emerging markets. The monetary policies in the Latin American countries like Brazil and Peru have, over many years been supportive of the objective of bringing growth and economic stability in their countries and the continent at large
The countries achieve these goals by focusing on the GDP indicators that are unfavorable and applying the necessary monetary policies that would attend to any shortcomings henceforth. The commonly known application is the expansion of money supply as a strategy of increasing money in circulation so as to curb the problem of money shortage hence increase GDP in the countries. Other strategies are those of controlling interest rates so as to contain inflation rates thereby the exchange rates through central bank interventions. The findings of the research sugeested that intervention can increase exchange rates in which thay can amplify the investor,s exchange rate expectations and the capital flows. It is therefore very clear the government interventions aimed at controlling exchange rate expectations directly influences the investment in that country since investors will be willing to invest in such a country.
The prices and exchange rates in turn affect the consumer and business demand within the economy in different ways. For instance, a rise or fall in the bank lending rates affects the spending within the economy. That is, lowering the interest increases spending in the economy since the cost of acquiring financing for investment is reduced while raising the interest rate lowers spending since it increases the cost of borrowing. A reduction in interest rates makes borrowing more attractive while saving becomes less attractive. This stimulates spending in the economy as many savers will spend their money on other income generating activities since saving does not generate high returns. On the other hand, borrowers will borrow from the financial institutions.
CONCLUSION
Monetary policies are utilized in cases where free market mechanisms cannot be able to control them. Countries use monetary policies in adjusting inflation rate in a county. Inflation occurs when there is large flow of money in the economy and has negative impact on its effect on an economy of a country. There is a direct connection between supply of money in an economy and the price levels and to them the argument is based on the theory of money. Theory of money states that supply of money is directly proportional to the prices levels in that the higher the supply of money in an economy the higher the prices. This can also be explained the theory of demand and supply whereby more money in circulation will mean that people will have extra money to spend thus the demand of goods will increase. When demand increases, supply tends to go down and thus suppliers will increase prices in efforts of regulating the demand of goods. Therefore, the event of it all will be that more supply of more in the economy will cause similar effects on prices.