Автор работы: Пользователь скрыл имя, 03 Мая 2013 в 00:22, курсовая работа
The aim of this paper is to examine the effect of money supply on inflationary processes in the Republic of Kazakhstan.
The objectives of the survey are as follows:
1.to define the mechanisms of inflationary processes regulation;
2.to consider matters of state anti-inflation policy;
3.identify the problems of inflation and improving the anti-inflation policy;
I. The role of money in economics and its influence on inflation processes
1.1 The essence and functions of money............................................................5
1.2 Types of money............................................................................................6
1.3 Quantity theory of money.............................................................................8
II. Inflation: the essence, reasons and methods of anti-inflationary regulations
2.1 The essence and reasons of inflation processes............................................9
2.2 Money credit politics of National Bank as a basic instrument of anti-inflationary processes........................................................................................10
III. Analysis of inflationary processes in the Republic of Kazakhstan
3.1 Statistical data of inflation dynamics from 2009 to 2011...........................14
3.2 Monetary aggregates as indicators of money circulation...........................18
IV. Problems and ways to improve the mechanisms of money circulation and inflation processes dependence regulation
4.2 Ways to improve..........................................................................................26
List of used literature
In an inflation targeting National Bank actions not related to a specific intermediate, may be sent, and to regulate the money supply, and to regulate the exchange rate - depending on the dynamics of any figure at this point in time is more closely correlated with inflation. This policy allows for a more pragmatic approach to monetary management, using various theoretical concepts and the world anti-inflation experience of regulation depending on the prevailing economic conditions.
The trends in the global economy in 2011 showed that actions taken by National Banks and governments of the EU members and the USA as well as by other countries that were mostly hit by the economic crisis resulted in the temporary mitigation of its implications but didn’t lead to recovery from the crisis. Besides, taken actions which consisted in providing liquidity to commercial banks, led to logical outcomes of such policy, mainly in boosting the inflation.
Discount rates of National Banks in the developed countries still remain low.
Inflation risks increased also due to the inflation “surge” in China which boosted centralized investments in its economy with a view to re-orient from the exporting to the stimulation of the domestic demand. Tremendous growth in the government investments resulted in signification acceleration of inflation in China and forced the Chinese Government to tighten its financial policy, which may inevitably lead to the decreased Chinese demand in the global markets.
In the context of such recessionary developments in the global economy the following factors of influence on the further operation of the Kazakh financial system appear – the access to foreign borrowings for commercial financial entities will remain limited (former donor countries which used to provide credit resources now are in need of such resources themselves); stagflation trends in the global economy are increasing. In general economic terms it should be mentioned that favorable pricing environment for major items of the Kazakhstan’s export may change unpredictably affected by implications of the crisis.
Stable development of the Kazakh economy was driven by the above-mentioned factor of favorable prices of export items as well as by implementation of the anti-crisis program of the Government of the Republic of Kazakhstan and the National Bank of the Republic of Kazakhstan. Stable operation of the financial sector and the deposit base growth represent key indicators in this aspect.
Monetary policy measures coupled with actions taken by the Government of the Republic of Kazakhstan allowed slowing down the rates of inflationary processes which accelerated in the first half of the year as a result of external shocks. Already at end-October 2011 the annual inflation rate was back within the target band of 6-8%.
Sustainability of the Kazakh economy to possible upsurges of the global economic crisis is supported by the “safety margin” denominated in gold and foreign currency reserves of the country and the National Fund of the Republic of Kazakhstan.
In 2011, the main objective of the National Bank of the Republic of Kazakhstan was to ensure the price stability in the country and to keep the annual inflation within 6-8%. Monetary policy measures of the Republic of Kazakhstan allowed preserving the stability in the country’s consumer market. By the end of 2011 the annual inflation was within the target range of 7.4%.
The trend of the national currency appreciation which started at the end of 2009 also continued at the beginning of 2011. The fluctuation range of the Tenge exchange rate was much narrower and its values were not approaching the thresholds of the currency band which was expanded in February 2010. Thus, the existence of the currency band in 2010 didn’t play a significant role. In this connection, at end-February 2011 the National Bank of the Republic of Kazakhstan switched to the managed floating exchange rate regime of the Tenge with the cancellation of the currency band.
The mechanism of minimum reserve requirements hasn’t changed in 2011. Since May 31, 2011 the ratios of minimum reserve requirements for banks have been raised from 1.5% to 2.5% on domestic liabilities and from 2.5% to 4.5% on other liabilities.
Owing to the anti-crisis measures taken by the Government of the Republic of Kazakhstan and the National Bank of the Republic of Kazakhstan as well as due to a favorable environment in the global commodity markets, the recovery of economic growth in the country continued in 2011. At the same time, the GDP growth rates will be moderate in the mid-term. Alongside with that, in the mid-term the government’s economic policy will be aimed at diversifying the economy and ensuring its growth of about 7%.
4.2 Ways to improve the mechanisms of money circulation and inflation processes dependence regulation
National macroeconomic anti-inflationary policy should have adequate mechanisms for implementation at the level of economic entities to ensure its effectiveness. If the institutions of market competition and economic responsibility of enterprises (up to the bankruptcy) are not well developed, the tightening of monetary policy to curb aggregate demand is not likely to cause economic agents to reduce production costs and thus reduce the prices of their products, and will reduce production and downturn in business activity.
If the development of inflation against the backdrop of the existence of significant sectoral and other imperfections, which comprise the balance of potential violations of currency, then, along with other inflationary measures should be restructured production according to the needs of social economy. Structural policies are usually carried out in order to increase the supply of those goods whose relative prices increase, thereby causing increase in the general price level.
1. Among the general economic measures of considerable importance is the competition policy aimed at maintaining competition in markets for goods and labor, the elimination or prevention of the use of the advantages of a monopoly position in the production of critical products or to offer exceptional manufacturing skills. Antitrust regulation of the economy prevents lobbying largest companies and corporations in regard to placement of state orders, receive tax benefits when setting tariffs and quotas, etc.
2. Direct methods of fiscal control in the field of finance is less public spending, including the volume of public procurement and public capital investment, the cost of the state apparatus and social benefits of military spending. Indirect control methods mainly include measures to change the tax, that is, increasing the income tax, indirect taxes and income tax, reducing tax exemptions, reducing non-taxable minimum, change the order of payment of taxes, etc. All this has a cartoon effect on the level of private consumption and investment. In addition, the financial capacity of enterprises and the purchasing power of population can be influenced by changing the rules of the accelerated depreciation of fixed assets, which are used in calculating taxable income and thus have an impact on prices.
3. Anti-inflationary measures in the monetary sphere. The measures of the monetary authorities to reduce inflation are realized within the restriction of monetary policy. It includes the restriction of the National Bank to issue money, as well as the use of general and selective methods of monetary regulation aimed at reducing the volume of lending to the economy and limit the money supply.
Typically, monetary policy affects inflation through its impact on domestic demand. Restriction measures (increasing the discount rate and reserve requirements, the sale of government securities by the National Bank) lead to the limitation of resources of the banking system, used for lending and growth in market interest rates (the policy of "expensive money").
4. The National Bank may also take measures to stimulate the growth of fixed-term cash deposits and a decline in the share structure of money supply of the most liquid assets. This will slow down the rate of turnover of money, which is analogous to a decrease in money supply in circulation. As a result of reduced domestic demand, increase inventory in the real economy. It makes economic agents to revise their production plans and pricing policy towards their decline - growth in output and inflation slowed.
The National Bank of the Republic of Kazakhstan while elaborating the Monetary Policy Guidelines of the Republic of Kazakhstan studied the scenario forecasts for the three subsequent years:
1) Scenario One – assumes pessimistic projections in case of deterioration of the situation in the global commodity and financial markets in the mid-term.
With the implementation of this Scenario, an insignificant contraction of the Kazakh economy is expected in 2012 with subsequent recovery in real growth of the economy to 2% in 2014. Under this Scenario, the reduced business activity, contracted aggregate demand, deteriorated balance of payments performance and decreased money supply are anticipated;
2) Scenario Two assumes certain stabilization of the situation in the global commodity and financial markets. Should the second scenario be realized, oil prices would be higher as compared to the first scenario but lower than the actual price level of 2011. As a result, growth rates of the Kazakh economy in 2012-2014 will slow down as compared to 2011. With the world price of oil at US$ 90 per barrel in 2012 and US$ 70 in 2013-2014, a positive trade balance is expected to be within US$ 20-26 bln., which will be partially offset by revenue payouts to foreign investors. In general, the current account is expected to be in the range between (-)1.5% and (+)0.5% of GDP in the forecast period;
3) Under Scenario Three, the economic growth rates in Kazakhstan in 2012-2014 are expected at a higher level as compared to the preceding scenarios. Under this balance of payments scenario based on the assumption that the world oil price would be US$ 100, a positive effect of the corrective measures in the global economy and the continuation of trends which commenced in 2011 are expected. In doing so, significant export revenues will be offset by the increased demand for imports and revenues payable to non-residents. Based on that, the current account proficit will be within the range of 2.0-4.0% of GDP in 2012-2014.
Given the extent of impact on the Kazakh economy, an annual average level of the world oil prices was determined as a key criterion for distinguishing between scenarios when formulating the monetary policy for 2012-2014.
Due to unstable developments in foreign markets as well as given a short-term nature of the monetary policy implemented by the National Bank of the Republic of Kazakhstan, the decision was made to formulate the monetary policy of the Republic of Kazakhstan for 2012 only. Key monetary policy and balance of payments indicators including monetary policy measures for the subsequent years will be specified based on the performance in 2012.
Ensuring the price stability i.e. maintaining a low rate of annual inflation adequate to the macroeconomic assumptions will remain as a top-priority area in the activity of the National Bank of the Republic of Kazakhstan in its monetary policy implementation in 2012.
Despite the fact that the National Bank of the Republic of Kazakhstan determined the price stability as the main monetary policy objective, the transition to the inflation targeting principles is postponed to a longer-run horizon. In the near-term the main efforts will be made to improve and enhance the efficiency of monetary policy instruments and to further increase the impact of taken measures on the condition of the money market.
The National Bank of the Republic of Kazakhstan while implementing the monetary policy of the Republic of Kazakhstan will take measures for flexible regulation of money supply in the economy. In the event of short-term liquidity squeeze in the money market, the National Bank of the Republic of Kazakhstan will increase the volume of liquidity operations.
At the same time, the National Bank of the Republic of Kazakhstan will be striving to maintain the monetary component at the optimal level and ensure that it doesn’t put additional inflationary pressure.
Short-term notes and deposits of banks with the National Bank of the Republic of Kazakhstan will remain as the main instruments for sterilization of excessive bank liquidity as well as for interest rate regulation in the financial market.
In 2012 the situation with liquidity in the money market will not cardinally change. Therefore, the maturities of these instruments are expected to be kept at the existing level: for short-term notes of the National Bank of the Republic of Kazakhstan – 3, 6 and 9 months, and for deposits attracted from banks – 7 days and 1 month.
Measures taken by the National Bank of the Republic of Kazakhstan will be aimed at enhancing the regulatory role of the interest rate policy and maintaining market rates in the market of short-term instruments within the interest rate band of the National Bank of the Republic of Kazakhstan.
In general, this will allow increasing the efficiency of liquidity management and regulation as well as building the yield curve of financial instruments in the money market.
As necessary, the National Bank of the Republic of Kazakhstan will provide refinancing loans to support short-term liquidity of banks. These operations will remain as short-term. At the same time, the National Bank of the Republic of Kazakhstan doesn’t expect the increase in demand for such resources. The term of these operations will not exceed one year.
In 2012 the National Bank of the Republic of Kazakhstan will continue to improve the mechanism of minimum reserve requirements in terms of increasing the efficiency of its application.
The foreign exchange policy of the National Bank of the Republic of Kazakhstan is intended for providing a balance between the domestic and foreign competitiveness of the Kazakh economy. When implementing its exchange rate policy, the National Bank of the Republic of Kazakhstan will not allow significant fluctuations in the real exchange rate of the domestic currency that could have negative impact on the competitiveness of the domestic output in the ever-changing global market environment.
The exchange rate policy will be adequately responding to changes in world prices and terms of foreign trade thus establishing the foundation for the development of domestic economy. The country may tap into the accelerated development path by strictly adhering to this policy in combination with such factors as the use of new technologies and equipment and improved quality of labor.
Depending on an economic situation, the National Bank of the Republic of Kazakhstan will strive to further reduce its involvement in the foreign exchange market with a view to strengthen flexibility of the exchange rate of the Tenge.
In case of a cardinal change in the economic situation, dramatic and significant drop in the world energy prices and their retention at such level for a long period of time as well as the currency devaluation in the countries – major trading partners of the Republic of Kazakhstan, a dramatic change in the exchange rate of the Tenge is possible.
Irrespective of the economic development scenario monetary policy measures will be aimed at keeping the annual inflation rate within 6-8%. The increase in excessive money supply that boosts the inflationary pressure will be adequately offset by the growth in sterilization operations of the National Bank of the Republic of Kazakhstan.
The National Bank of the Republic of Kazakhstan will be applying any given monetary policy measures and foreign exchange policy measures taking account of integration processes occurring as part of the Common Economic Space.
Currently, inflation - one of the most painful and dangerous process, negatively impacting on the finances, monetary and economic system as a whole. Inflation does not only mean lower purchasing power of money, it undermines the possibility of economic regulation, nullifying the efforts to implement structural reforms, recovery of disturbed proportions.
In this paper we have given the concept of inflation, it identified the types of laws, considered such important concepts as creeping, galloping inflation and hyperinflation. It also resulted in the definition of a balanced and unbalanced, expected and unexpected, open and repressed inflation, opened the main reasons which result in inflation, its characteristics and methods of its regulation.
The main cause of inflation stands issuance of banknotes and, consequently, the excess money in circulation compared to the real needs of the economic circulation of money. The normalization of monetary inflation and counter require tuned, flexible solutions that persistently and purposefully carried into action.
The sources of inflationary phenomena are rooted in the current and constantly reproducible macro-economic imbalances, in the economy created in the form of administrative control, which determines the pricing model, a way of making investment decisions and external, in a particular model of fiscal and monetary policies.
The root causes of inflation are both in the sphere of circulation, as well as in production and is often conditioned by economic and political relations in the country, and its consequences can occur for many decades. But it is important to know not what consequences may result in inflation, and how to avoid these negative consequences. That is why the development of anti-inflation program to become one of the most important tasks of the State in which rampant inflation.
List of used literature