Obstacles In Implementation of Monetary Policy ↓
Through the monetary policy is useful inward attaining many goals of economical policy, it is non gratis from for sure limitations. Its ambit is express past times for sure peculiarities, inward developing countries such every bit India. Some of the of import limitations of the monetary policy are given below.
1. There be a Non-Monetized Sector
In many developing countries, in that location is an being of non-monetized economic scheme inward large extent. People alive inward rural areas where many of the transactions are of the barter type together with non monetary type. Similarly, due to non-monetized sector the progress of commercial banks is non upwardly to the mark. This creates a major bottleneck inward the implementation of the monetary policy.
2. Excess Non-Banking Financial Institutions (NBFI)
As the economic scheme launch itself into a higher orbit of economical growth together with development, the financial sector comes upwardly amongst slap-up speed. As a termination many Non-Banking Financial Institutions (NBFIs) come upwardly up. These NBFIs every bit good furnish credit inward the economy. However, the NBFIs produce non come upwardly nether the purview of a monetary policy together with thence nullify the consequence of a monetary policy.
3. Existence of Unorganized Financial Markets
The financial markets aid inward implementing the monetary policy. In many developing countries the financial markets peculiarly the coin markets are of an unorganized nature together with inward backward conditions. In many places people similar coin lenders, traders, together with homo of affairs actively stimulate got business office inward coin lending. But unfortunately they produce non come upwardly nether the purview of a monetary policy together with creates hurdle inward the success of a monetary policy.
4. Higher Liquidity Hinders Monetary Policy
In speedily growing economic scheme the deposit base of operations of many commercial banks is expanded. This creates excess liquidity inward the system. Under this circumstances fifty-fifty if the monetary policy increases the CRR or SLR, it dose non deter commercial banks from credit creation. So the being of excess liquidity due to high deposit base of operations is a hindrance inward the agency of successful monetary policy.
5. Money Not Appearing inward an Economy
Large percent of coin never come upwardly inward the mainstream economy. Rich people, traders, businessmen together with other people prefer to pass rather than to deposit coin inward the bank. This shadow coin is used for buying precious metals similar gold, silver, ornaments, province together with inward speculation. This type of lavish spending give rising to inflationary tendency inward mainstream economic scheme together with the monetary policy fails to command it.
6. Time Lag Affects Success of Monetary Policy
The success of the monetary policy depends on timely implementation of it. However, inward many cases unnecessary delay is works life inward implementation of the monetary policy. Or many times timely directives are non issued past times the fundamental bank, together with so the touching on of the monetary policy is wiped out.
7. Monetary & Fiscal Policy Lacks Coordination
In social club to grade a maximum of the inward a higher house objectives it is unnecessary that both the financial together with monetary policies should teach paw inward hand. As both these policies are prepared together with implemented past times 2 unlike authorities, in that location is a possibility of non-coordination betwixt these 2 policies. This tin impairment the involvement of the overall economical policy.
These are major obstacles inward implementation of monetary policy. If these factors are controlled or kept inside limit, together with so the monetary policy tin give expected results. Thus though the monetary policy suffers from these limitations, even so it has an immense significance inward influencing the procedure of economical growth together with development.
