The government?s attitude towards monetary policy is the deliberate attempt (a) to control the supply of money, (b) to control interest rates, (c) to ration the amount of credit granted by banks. This monetary policy is highly controversial because the majority of economists do not agree (nor most politicians for that matter) on how effective the new monetary policy can be, or on what form it should take.

The old monetary policy has undergone enormous changes since the days of SSR. Between the 60?s and the 70?s, fiscal policy was seen as the major weapon for controlling the economy?During the 1980?s there was a major swing in the attitudes of many economists and politicians. The rise of monetarism was accompanied by increased importance being attached to monetary policy. There were a number of factors leading to this. The main ones were as follows : (1) There was this failure to account for and provide solutions to the growing problem of stagflation. Fiscal policy had failed; perhaps monetary policy could provide the answer. (2) ? there is a direct causal link between growth in the money supply and inflation.

The high point of monetarism came in the early 1980?s. Governments round the world made the control of inflation the number one short-term macroeconomic objective. To achieve this they pursued tight monetary policies, which in many cases involved setting targets for the growth in money supply. Our Finance Minister Mr Sithanen should adopt the same system as the UK government adopted 15 years ago, a medium-term financial strategy (MTFS). This involved setting targets each year for the growth of money supply over the following five years, thus putting the squeeze on inflation. To achieve these money supply targets the MTFS also included targets for cutting the public-sector borrowing requirement.

Our country needs to adopt a more pragmatic approach to monetary policy. It had been found difficult to control money supply and to keep it within target ranges. Any way a government can cope with any resulting inflation after the desire to prevent exchange rate fluctuations, and the use of changes in interest rates to achieve this. As we shall see, if the in-

terest rate is used to control exchange rates, it cannot at the same time be used to achieve money supply targets. In framing its new monetary policy, the government must address itself to a number of important questions:

What are the goals of monetary policy ? Is the aim simply to control inflation, or does the government wish also to affect output and employment, or does it want to control the exchanging rate?

Where does monetary policy fit into the total package of macroeconomic policies? Is it seen as the major or even sole macroeconomic policy weapon, or is it merely one of several policy weapons, and possibly a minor one at that ? What element of the monetary system should the government seek to control ?

How reliable is monetary policy in controlling monetary variables? Just how successfully can our government control money supply or interest rates?