Resources for Basel II Capital Accord (Basel II)

Defending our financial framework

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The central bank of a country through monetary policycontrols supply, availability and cost of money so as to achieve optimum growth and economic stability. Monetary policy is flexible i.e. immediate changes can be made in response to shocks, as opposed to fiscal policy, which takes longer to manage and implement. Monetary policy can be expansionary, i.e. increasing the total supply of money, as opposed to being contractionary, which decreases cumulative money supply. Expansionary policy is adopted when confronted with unemployment during recession by lowering interest rates. Conversely, contractionary policy is espoused to stabilise inflationary pressure through elevated interest rates. Lately, we have been hearing about "accommodative monetary policy" -- warranting a balance between growth and inflation. In such policy, we see relatively quick shifts from expansionary to contractionary measures and vice-versa to fine tune growth in an economy prone to inflationary pressures.

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