Merits and Demerits of Monetary policy: Monetary policy has several advantages over the two alternative types of stabilizers—fiscal policy and direct controls (price controls and rationing).
Generally, historical evidence does reflect that Pakistan has been a high inflation and high interest economy given its inherent structural weaknesses. The role and effectiveness of monetary policy appears more visible in the 2000s when financial sector reforms started bearing fruits in terms of a more market based money and foreign exchange markets.
Political independence: Monetary policy is highly impersonal. Monetary policy interferes very little with the freedom of the market, although market imperfections sometimes intensify the effects of policy upon particular sectors of the economy. A tight monetary policy cuts down the rate at which total spending can rise. Monetary policy is flexible. The Federal Open Market Committee usually meets about every six weeks, reaches a decision, and acts on that decision immediately.
Focus on Inflation:
Unlike many other countries, our monetary policy seems to reach beyond its underlying fundamentals. In its latest monetary policy announcement, the State Bank of Pakistan (SBP) has focused more on inflation than other factors. It can be observed that inflation, which is a fiscal-driven phenomenon, cannot be controlled through monetary measures. A tight monetary policy does not assure the curbing of inflation, even when it is the prime goal of the monetary policy. In Pakistan there always exists a danger of inflation. It is because of the reason that output cannot be increased to the desirable extent. There is a big population pressure. The government expenditures are far more than government revenues. The trading is carried under hoarding and speculation .in such circumstances; the monetary policy cannot work properly.
Time lag and