The Effects of Monetary Policy on Poverty Alleviation in Pakistan

Abstract

This research analyzes the effect of monetary policy of central bank on the poverty alleviation. Monetary policy is the policy adopted by the monetary authority of a country that controls either the interest rate payable on very short-term borrowing or the money supply, targeting inflation or the interest rate to ensure price stability and general trust in the currency. This study is taking two variables in monetary policy namely interest rate and money supply. Effects of both variables examined on poverty rate in context of Pakistan. Moreover, association and effect examined between both variables (interest rate and money supply). This study comprises on quantitative research methodology as secondary data taken from world indicator from 2001 to 2017. Regression analysis applied on collected data. According to findings, if central bank increases in supply of money in economy, it cannot reduce poverty rate in Pakistan. It is because more money supply will bring inflation, which discourages investment of all types. If high interest rate set by central bank then it cannot bring significant reduction in poverty rate of Pakistan as it will reduces the investment and overall employment. If central bank set increased interest rate then it deceases the money supply in the economy of Pakistan, as funds will be, divert to banks for earning interest on deposits. Recommendations and conclusion are given at the end of this paper.