Monetary Policy

J. Basic. Appl. Sci. Res., 4(8)119-124, 2014
© 2014, TextRoad Publication

ISSN 2090-4304
Journal of Basic and Applied
Scientific Research www.textroad.com The Impact of Monetary Policy on Financial Performance: Evidence from
Banking Sector of Pakistan
Rashid Zaman*, Muhammad Arslan, Muhammad Sohail, Dr Rashida Khatoon Malik
Department of Management Sciences, Bahria University Islamabad, Pakistan
Received: April 29, 2014
Accepted: June 27, 2014

ABSTRACT
Interest rate an important indicator of monetary policy always has major impact on financial sector performance.
The purpose of this paper is to enlightened the monetary policy effect on banking sector stability and performance by investigating the casual relationship between interest rate imposed by state bank of Pakistan and bank financial performance taken as ROA and ROE. Highlighting the importance of monetary policy in banking sector, this study shall focus in depth over its impact on performance of banking industry of Pakistan by studying monetary transmission over the past five year (2007-2011), using interest rate as its measure. Using correlation analysis followed by ordinary Least Square regression carries the empirical analysis of the study. Firm size is taken as control variables for the study as firm size have significant impact on financial performance of banks. The finding of study reveal that interest rate taken as measure for monetary policy has significant inverse relationship on firm financial performance measured, which is measured by ROA and ROE.
KEY WORDS: Monetary Policy, Interest rate, Return on assets, Return on Equity
1. INTRODUCTION
Monetary policy has the significant contribution to sustainable economic development by enhancing the performance of the banks. Monetary policy is the actions which undertake to influence the cost of money and credit and their availability. In Pakistan the State Bank of Pakistan (SBP) is responsible for maintaining the monetary policy. In case of open economy

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