Obstacles In Implementation of Monetary Policy ↓
Through the monetary policy is useful inwards attaining many goals of economical policy, it is non gratis from for certain limitations. Its compass is express past times for certain peculiarities, inwards 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 beingness of non-monetized economic scheme inwards large extent. People alive inwards rural areas where many of the transactions are of the barter type too 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 inwards 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 too development, the financial sector comes upwardly amongst non bad speed. As a outcome many Non-Banking Financial Institutions (NBFIs) come upwardly up. These NBFIs every bit good render credit inwards the economy. However, the NBFIs create non come upwardly nether the purview of a monetary policy too thence nullify the number of a monetary policy.
3. Existence of Unorganized Financial Markets
The financial markets aid inwards implementing the monetary policy. In many developing countries the financial markets peculiarly the coin markets are of an unorganized nature too inwards backward conditions. In many places people similar coin lenders, traders, too human being of affairs actively accept business office inwards coin lending. But unfortunately they create non come upwardly nether the purview of a monetary policy too creates hurdle inwards the success of a monetary policy.
4. Higher Liquidity Hinders Monetary Policy
In apace growing economic scheme the deposit base of operations of many commercial banks is expanded. This creates excess liquidity inwards 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 beingness of excess liquidity due to high deposit base of operations is a hindrance inwards the agency of successful monetary policy.
5. Money Not Appearing inwards an Economy
Large per centum of coin never come upwardly inwards the mainstream economy. Rich people, traders, businessmen too other people prefer to pass rather than to deposit coin inwards the bank. This shadow coin is used for buying precious metals similar gold, silver, ornaments, nation too inwards speculation. This type of lavish spending give ascension to inflationary tendency inwards mainstream economic scheme too 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, inwards many cases unnecessary delay is institute inwards implementation of the monetary policy. Or many times timely directives are non issued past times the primal bank, too so the acquit on of the monetary policy is wiped out.
7. Monetary & Fiscal Policy Lacks Coordination
In lodge to accomplish a maximum of the inwards a higher house objectives it is unnecessary that both the financial too monetary policies should larn mitt inwards hand. As both these policies are prepared too implemented past times ii dissimilar authorities, in that location is a possibility of non-coordination betwixt these ii policies. This tin terms the involvement of the overall economical policy.
These are major obstacles inwards implementation of monetary policy. If these factors are controlled or kept inside limit, too so the monetary policy tin give expected results. Thus though the monetary policy suffers from these limitations, withal it has an immense significance inwards influencing the procedure of economical growth too development.
