Monetary
Policy Target (Annual)
Based on the second article of the Da Afghanistan
Bank Law, the ultimate objective of DAB is price stability. Without maintaining
stability in the national currency against the prices of goods and services,
achieving this goal is not possible. Since Afghanistan is an open economy with
a huge trade deficit, domestic prices are highly vulnerable to the exchange
rate fluctuations. Therefore, in order to prevent serious fluctuation in
the exchange rate of afghani, and to avoid its negative impacts on the domestic
prices and other economic indicators, DAB intervenes in the market via Managed
Floating Exchange Rate regime.
Like any other economies in the world, in
Afghanistan, the value of national currency against the goods and services as
well as against the foreign currencies is determined by the demand and supply
factors. The demand for national currency in Afghanistan is associated with the
rate of domestic economic activities (real economic growth) as well as depends
on the people’s tendency to use national currency.
Currently, the government expenditures are the main
source of demand for afghani. Monetary policy, increasing or decreasing of
money supply (controlling liquidity), is designed based on the aggregate demand
for the national currency.
Therefore, monetary policy is designed in
coordination with the fiscal policy condition (revenue/expenditures plan of the
government). Meanwhile, seasonal developments, real sector boom or slumps are
the other factors that impact the aggregate demand for afghani. Hence, monetary
policy's plan is designed with a close cooperation of the fiscal policy
(government's revenues/expenditures program). At the same time, seasonal
changes, boom and slump in the real sectors are also responsible on the
aggregate demand for national currency.
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