Monetary Policy & Fiscal Policy - Similarities, Difference & Interrelationship

Monetary Policy & Fiscal Policy
The policy adopted by the central bank to reduce the effect of monetary policy is monetary policy. The policy adopted by the government to move the economy in the right direction is fiscal policy.

Similarities between Monetary Policy & Fiscal Policy
  1. Both are economic policies of the government.
  2. Both policies carry the main objectives of economic stability, economic growth and social justice.
  3. Both policies are issued by the government. - Fiscal Policy from the Ministry of Finance and Monetary Policy from Nepal Rastra Bank)
  4. Both policies are complementary. Therefore, coordinated use of both policies is essential for economic development.

Interrelationship between Monetary Policy & Fiscal Policy
  • The aim of both policies is to achieve social justice through economic growth and economic stability.
  • While formulating the financial policy, the Governor of NRB and the Finance Secretary are present in the Board of Directors of the Central Bank.
  • The impact of monetary policy is reduced by monetary policy as deficit budget increases inflation but monetary policy promotes contractionary policy to control inflation.
  • Monetary policy provides income tax exemption to increase exports, customs tax exemption. Monetary policy provides low interest rate export refinance to increase exports.
  • Fiscal policy operates programs to reduce poverty and inequality, food distribution, free education, free health, income generation programs, women's development programs, skill-based programs, youth self-employment programs, grants, while monetary policy operates various programs through microfinance development banks.
  • Fiscal policy makes policy arrangements for investment growth while monetary policy helps to create a conducive environment by controlling the money supply through its various instruments.
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