Price Stability: This means that the general price level in the economy remains relatively stable over time. Low and stable inflation is important for maintaining the value of money and reducing uncertainty for businesses and consumers.
Financial Market Stability: It implies that financial markets operate smoothly and efficiently. This includes the ability of investors to buy and sell assets at fair prices, without major market disruptions or excessive volatility.
Banking System Stability: Financial stability requires a sound and stable banking system. Banks play a critical role in the financial system by providing credit to households and businesses, and managing risks effectively is crucial to maintain their stability.
External Stability: This aspect of financial stability relates to the country's ability to manage external shocks and maintain equilibrium in the balance of payments. It involves sustainable exchange rates and an appropriate level of foreign exchange reserves.
Debt Sustainability: Financial stability also means that the level of debt in the economy is manageable. Excessive debt can lead to financial vulnerabilities, making the system susceptible to shocks.
Regulatory and Supervisory Frameworks: Effective regulations and supervision are essential to promote financial stability. They help to mitigate risks, ensure market integrity, and protect consumers and investors.
Overall, financial stability is a complex and multifaceted concept that encompasses various dimensions and is integral to the overall health and functioning of an economy.