Impacts of Da Afghanistan Bank’s Monetary Policy on Inflation and Exchange Rate

Abstract

The Afghanistan Bank monetary policy is primarily used to maintain the stability and value of the Afghani. The Afghanistan Bank aims to remove unnecessary Afghanis from circulation through currency auction. On the one hand it results the amount of money in circulation (Afghani) is controlled to keep the price level stability, which is the main function of the Afghanistan Bank, and on the other hand, it indirectly prevents the depreciation of the Afghani against the dollar. Every year, the Afghanistan Bank sell a large amount of USD, but sometimes purchase take place. The Afghanistan Bank has been very successful in its monetary policy in achieving monetary stability and price stability. For example, in case of inflation we have seen that with an increase of one percent in the currency auction, inflation increases by 0.034 percent, in the exchange rate, increase of one percent in the amount of the currency auction, the value of Afghanis increases by 0.002 percent.