What are the disadvantages of monetary policy?
Many national governments use a number of different currency policy instruments to direct the economy. These policies are usually introduced to achieve a certain goal, such as cheaper loans or lowering inflation pressure. The disadvantages of monetary policy include the fact that specific policies negatively affect certain individuals and businesses. Moreover, some people claim that monetary policies have a negative impact on the stock market.
When interest rates are high, loan costs increase, and this means that car mortgages and car loans are expensive and that credit cards have high interest rates. Central banks can reduce rates by lowering interest rates that banks have to pay for lending money from the government. The disadvantages of monetary policy decisions to reduce interest rates include the fact that banks lower interest rates in deposit accounts such as deposit certificates (CD) in response to such political movements. Bankas have no motivation to pay high rates to consumers, if they can borrow funds from the government cheaply. Savings therefore earn less on their money, which can affect their standard of living.
During the inflation periods, national governments increase key interest rates to rank the loan. As a result, consumer consumer consumption and expenses often decrease. High rates result in better returns of saver, but mortgages and car loans can become disproportionately expensive for other consumers. The disadvantages of monetary policy therefore include the fact that government agencies must decide which benefits the savings and negatively affect debtors or vice versa.
Some types of investment, including bonds, are sensitive to interest rate fluctuations. When interest rates rise, low yield bonds drop value, but the opposite occurs when interest rates increase. As a result, one of the thresholds of monetary policy is the fact that the national government can n nEpartance to influence the sale of securities with fixed yield. In some cases, government use monetary policy to deliberately manipulate the bond market for the greater good of the economy, but this can cause bond holders to lose money.
The value of shares often decreases during the period of recession and other times of economic uncertainty. Some investors use such situations and buy shares at low prices with the expectation of the sale of these shares for profit when they recover the market. Critics of monetary policy claim that government actions disrupt the natural outflow and flow of free market. If the government takes steps to stabilize the market, shares may not increase and reduce value in line with market conditions. Some people claim that concerns about government -affecting market events can persuade some not to invest in nations where government agencies firmly control monetary policy.