A Study On Laos Monetary Policy’s Impact From 2000 To 2012

In each country’s economic system, inflation is an important indicator for economic growth. It influences the market price and also can not be separated from it. Whenever there is a variation in the inflation rate, commodities price can be influenced accordingly, in addition it will lead to the lower purchasing power. Ordinary, while many people are willing to purchase goods this will lead to an increase in aggregated demand and finally it will cause inflation. Furthermore, companies’investments also decrease when the interest rate increases, the increase in domestic commodities prices cause the decrease in exports whereas the imports increased which lead to trade deficit. In order to solve the above problems, this research will deal with 1.the analysis of inflation rate in Laos as well as the causes of inflation; 2.the management of Laos Central Bank towards commercial banks and financial institutions; 3.The analysis of Laos’monetary policy to solve the problem of inflation; 4.the use of Laos exchange rate policy to solve the problem of inflation; 5.Currency Regulation and promotion of the use of Laos Kip. In this paper, we used both qualitative and quantitative methods for analysis, the statistical data used are collected from different institutions such as Ministries, Bank of Laos, Asia Development Bank, International Monetary Funds. The tables and graphics in this paper will detail the relationship between economic growth, monetary policy and money supply (M2) fluctuation, they will display detailed information and explanation about the descriptive research method on inflation. Through the data analysis, we discovered that inflation rate in Laos has been declining for the period of 2000 to 2002, waiting the year 2003 to rise again, but fortunately it was not as high as the one of the year 2000. From 2004 to 2007, it continued to decrease but it has risen a little bit again in 2008.2009 is the year of the lowest inflation rate and from 2010 to 2012 the inflation rate was relatively stable. At the same time the central bank of Laos put in place some monetary policies in order to solve the problem of inflation, for example, in 2000 to 2001,2003 to 2005 and 2010, the Bank implemented a tight monetary policy, in 2002,2006 to 2009, the central bank implemented an expansionary monetary policy and in 2011 to 2012 The central bank implemented a combination of monetary policy. Also, by the exchange rate policy. The central bank has developed quoted daily exchange rate for commercial banks to improve exchange. Furthermore central bank made efforts to regulate the use of foreign currency and encourage the use of Lao Kip, let people believe in banks and value of Lao Kip.