Fiscal policy, monetary policy
- By Subash Gobine
- Published 18th July, 2008
There are two arms of macro-economic policy making in any country: fiscal policy and monetary policy. The Minister of Finance is responsible for fiscal policy and the Governor of the Central Bank- in our case the Bank of Mauritius- for monetary policy.
Fiscal policy plays a stabilizing and distributive role. Monetary policy plays the role of achieving price stability. Rundheersing Bheenick should be made to understand, if he does not until now, that his primary role is to achieve price stability.
This is what Section 4 of the Bank of Mauritius Act 2004 says about the objective of the Bank of Mauritius in very precise terms:
(1) The primary object of the Bank shall be to maintain price stability and to promote orderly and balanced economic development.
(2) The other objects of the Bank shall be -
(a) to regulate credit and currency in the best interests of the economic development of Mauritius;
(b) to ensure the stability and soundness of the financial system of Mauritius; and
(c) to act as the central bank for Mauritius.
Note that to maintain
'price stability and to promote orderly and balanced economic development' comes first because it is the primary objective. All other objectives of the Bank are secondary. What we see in developed countries is a clear trend to hive off regulation of banks including compliance to guidelines and laws to a separate organization referred to as Financial Services Authority, the equivalent of our Financial Services Commission. In those countries as in Mauritius, the conduct of monetary policy with a view to achieving low and stable inflation rate is the primary objective. The Bank of Mauritius Act 2004 was reviewed and modernized taking into account the findings of economic research done in the leading Universities and central banks of the world.
In most modern central banks, Monetary Policy Committees have been established by law. Decisions are taken about the monetary policy stance of the country with the objective of achieving lasting price stability.
Related article:
Fiscal policy plays a stabilizing and distributive role. Monetary policy plays the role of achieving price stability. Rundheersing Bheenick should be made to understand, if he does not until now, that his primary role is to achieve price stability.
This is what Section 4 of the Bank of Mauritius Act 2004 says about the objective of the Bank of Mauritius in very precise terms:
(1) The primary object of the Bank shall be to maintain price stability and to promote orderly and balanced economic development.
(2) The other objects of the Bank shall be -
(a) to regulate credit and currency in the best interests of the economic development of Mauritius;
(b) to ensure the stability and soundness of the financial system of Mauritius; and
(c) to act as the central bank for Mauritius.
Note that to maintain
In most modern central banks, Monetary Policy Committees have been established by law. Decisions are taken about the monetary policy stance of the country with the objective of achieving lasting price stability.
Related article:
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1 Response to "Fiscal policy, monetary policy" 
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said this on 18 Jul 2008 2:48:14 PM MUT
My dear Subash
Your replying comments on Bank of Manou was a nice exposé defending your prise de position but not necessarily in conformity with what ought or ought not at central banks. Reference to amendments 2004 is still being digested as the legislators seemed to have attributed new functions, ultra vires, to central banks. I am still searching for more info to understand the legislators' logic. Your present editorial is a continuity of your statutory logics. However, I must say there are "zones d'ombres" to investigate. Is price system or price income, Monetary or Fiscal policy? How does one understand pricing mechanism when money market degree of responsiveness is elastic but in Mauritius it is inelastic ... Your lights are greatly appreciated ... |
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