Limitations of Monetary Policies

  1. Commercial banks do not cooperate fully within the central bank
  2. A government monetary system may be reduced or increased in size and controlled tightly without deleterious effects on its performance,however monetary system contains commercial banks that are in business for profit.
  3. The system may create problems for monetary authorities .this controls may weaken profit and capital positions of banking system and this may in turn make commercial banks less responsive to policies of monetary authorities.
  4. Omos are not quite virtually effective in controlling money supply due to less developed money and capital markets and limited range of financial assets(securities) held by C.M.A.
  5. On reserve requirement,some commercial banks have access to external lines of credit from partners/their parent companies.
  6. Funding-may be effective in controlling liquidity.however since the rate of intrest on long term debt is usually much-higher than on short-term loans.

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