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.