About Monetary Policy
Da Afghanistan Bank has the responsibility of conducting monetary policy. This responsibility is explicitly mandated under the Da Afghanistan Bank Law, 2003.
Article 62 of Da Afghanistan Bank Law states: "Da Afghanistan Bank shall be responsible for the formulation, adoption and execution of the monetary policy of Afghanistan."
Monetary policy refers to the policy undertaken by Da Afghanistan Bank (DAB), as the central bank of Afghanistan, with regard to the use of monetary instruments under its control to achieve the goals specified in the law.
Monetary policy in Afghanistan involves Da Afghanistan Bank's use of instruments to influence money supply in the economy aiming at overall prices and financial system's stability.
Low and stable inflation provides favorable conditions for sustainable growth and employment generation over time. It reduces uncertainties about future prices of goods and services and helps households and businesses to make economically important decisions such as consumption, savings and investments with more confidence. This, in turn, facilitates higher growth and creates employment opportunities over the medium term leading to overall economic well-being in the country.
How Does Monetary Policy Work?
DAB signals its monetary policy stance through adjustments in money supply in the market. Changes in money supply will impact demand in the economy. To maintain its primary objective of domestic price stability, Da Afghanistan Bank has adopted a framework which is known as the Monetary Aggregate Targeting Framework. Controlling liquidity condition is highly important in the economy; hence any changes in the rate of liquidity have a direct impact on the overall economic activities in the country. Therefore, changes in liquidity rate should be consistent with the rate of economic growth as well as the demand for the national currency in the economy.