Similarities and differences between monetary policy and fiscal policy
Monetary policy is the policy adopted by the central bank to reduce the effect of currency. The policy adopted by the government to move the economy in the right direction is fiscal policy.
- Similarities between monetary policy and fiscal policy
- Both are economic policies of the government.
- Both policies carry the main objectives of economic stability, economic growth and social justice.
- Both policies are issued by the government. – Fiscal Policy from the Ministry of Finance and Monetary Policy from Nepal Rastra Bank)
- Both policies are complementary. Therefore, coordinated use of both policies is essential for economic development.
- The interrelationship between monetary policy and fiscal policy
- The aim of both policies is to achieve social justice through economic growth and economic stability.
- While formulating fiscal policy, the Governor of NRB and the Finance Secretary are present in the Board of Directors of the Central Bank.
- The impact of monetary policy is reduced by monetary policy as deficit budget increases inflation but monetary policy promotes contractionary policy to control inflation.
- Monetary policy provides income tax exemption, customs tax exemption to increase exports. Monetary policy provides low interest rate export re-credit for export growth.
- Fiscal policy operates programs to reduce poverty and inequality, food distribution, free education, free health, income generation programs, women’s development programs, skill-based programs, youth self-employment programs, grants, while monetary policy operates various programs through micro-finance development banks.
- Fiscal policy makes policy arrangements for investment growth while monetary policy helps to create a conducive environment by controlling the money supply through its various instruments.