FINANCIAL MARKETS AND MONETARY POLICY Essay Example | Topics and Well Written Essays - 1750 words - 1

FINANCIAL MARKETS AND MONETARY POLICY - Essay Example Since then it has been varying over the years where the present name ‘official bank rate’ was initiated in 2006 replacing the former ‘Repo Rate’ that existed till 1997. The rate of interest is levied by the nation’s central bank or the Federal bank on lending or advances to regulate the supply of money in the banking sector and overall economy. This is essentially conducted on a quarterly term to regulate the inflation rate and strengthen the nation’s rates of exchange. Any deviation in the bank rates stimulates a ripple-impact as it affects every sector of the economy. For example, the stock prices in the exchange market seem to respond to the changes in the interest rates. A variation in the bank rates has an impact on the customers as it affects the prime rates of interests for individual loans. The Bank rate is the rate at which the Bank of England gives to the commercial bank for the extra reserves being kept in safe custody of the Central Bank (Ciro, 2012, p. 122). Conventionally, the treasury determines the rates of interests. But upon the reforms that occurred in 1992, the policy makers organized several meetings and minutes were published, yet they were not autonomous of the state which resulted into a perception that political forces were overshadowing what was stipulated to be fiscal decisions on the monetary policy. In 1997 there was operational accountability to determine the interest rates which was granted to the autonomous Bank of England by Gordon Brown-the Chancellor of Exchequer. Several principles were set for the establishment of the Monetary Policy Committee (MPC) that was enacted in the Bank of England Act 1998 (OECD, 2009, p. 31). The Act also spelled out the accountability of the MPC: this include; meeting on monthly basis, the membership consists of the governor, two deputy governors, two executive directors of the bank