Abstract

• Inflation is the second most serious macroeconomic problem-

second only to hunger and poverty.
• The trend in the rising prices affected all those who depends on
Market for their Income and Supplies.
• In India, the onus to control Inflation is upon RBI and the
banking Industry.
• The country’s infrastructure is not able to meet the increasing
demand of the Indian consumer.
• It is time for the central bank to go beyond the monetary
measures and address this issue of concern.
 Presentation Path

1. Introduction

2. Inflation in India

3. Impact of Inflation in India

4. Role of RBI and the Banking Industry

5. Role of Monetary policies in combating Inflation

6. Limitations and Effectiveness of Monetary policies

7. Consequences of RBI policy

8. Suggestions and Conclusion.

 Introduction

• Inflation is a rise in the general level of prices of goods and

services in an economy over a period of time

‘Too much money chasing too little goods.’

 Negative Effects of Inflation

• Increase in the prices of goods & services

• Decrease in the real income
• It encourages hoarding
• Decrease in the value of investments
• Leads to a wage spiral
 Positive Effects of Inflation

• Relief from Debt

• Increase in Investments
 Types of Inflation

1. Moderate Inflation

2. Galloping Inflation

3. Hyper Inflation.

People carried basket-load of money to the market and brought

goods in the pocket.
 INFLATION IN INDIA

The highest inflation that India has ever seen in the past
two centuries is 53.8%, in the famine year of 1943.
 Impact of Inflation in India

• Affected all those who depends on market for their income and
supplies.
• The fruits of economic growth have not reached large sections.
• The benefit of high prices paid by consumers does not flow
back to primary producers.
• Shortages of essential commodities have widened.
• Imports have become expensive.
 Role of RBI and the Banking Industry

• Banking Industry and the RBI is responsible for maintaining

monetary stability and sound financial system for the welfare
of the Economy.
• In India, the onus to control and take control of the situation
of inflation is upon RBI.
• The RBI and the Banking Industry has certain weapons which
it yields every time and in all situations to control the amount
of credit flowing in the market.
Role of Monetary Policies in Combating
Inflation
 What is a Monetary Policy?

Monetary policy is the process by which the central bank, or

monetary authority of a country controls (i) the supply of
money, (ii) availability of money, and (iii) cost of money or
rate of interest, in order to attain a set of objectives oriented
towards the growth and stability of the economy.
 Objectives of Monetary Policy

• To accelerate economic development in an environment

of reasonable price stability.
• Exchange Stability.
• Full employment and maximum output.
• High rate of growth.
 Techniques of Monetary Control

BANK CRR
OMO
RATE

INTEREST
SLR RATES
 Techniques of Monetary Control

• Open Market Operations:

RBI controls its national money supply by buying and selling
government securities, or other financial instruments.

• Bank Rate:
Discount rate or bank rate is the rate at which central bank
rediscounts the bills of exchange presented by the commercial
banks.

Contd…
 Techniques of Monetary Control

• Cash Reserve Ratio:

The minimum reserves of total deposits which each bank must hold with the
central bank.

• Statutory Liquidity Requirement:

The SLR is the proportion of total deposits which commercial banks are
statutorily required to maintain in form of liquid assets.

Contd…
 Techniques of Monetary Control

• Interest Rates :
RBI advises banks to announce their benchmark prime lending
rates (BPLRs) based on their actual cost of funds.
 Limitations and Effectiveness of Monetary
Policy

• Time lag
- inside lag.
- outside lag.

• Problem in Forecasting

• Non-banking financial intermediaries

 Consequences of RBI Policy

 Impact on the Economic Growth

 Less Investment Activity
 Financial inclusion
 Reduction in bank accounts
 Impact of the CRR hike will not distinguish as between
productive credit and credit meant for consumption
 RBI addressing only the demand-side
 Suggestions
and
Conclusion
 Suggestions

• Inflation can be contained only if supply-side and demand

issues are effectively addressed.

• It would require infrastructure development, planning, large

scale investments, etc.

• Issue of master circulars - direct various aspects of banking

and corporate matters.
 Suggestions

• Bolstering agricultural growth - with the purpose of meeting

the ever – rising demand.

• Carefully routed capital- benefit the farmers and the SME’s.

• Ensuring greater transparency in the RBI's sterilization

operations.
 Conclusion
 The RBI is the only authority which is empowered as well as
capable to handle the situation of Inflation.
 Monetary policy is important to fight inflation. But the point
is, is it enough?
 Improved standard of living - the country’s infrastructure
should be developed to meet the requirements of its people.
 Instead of artificially pushing demand down, the RBI should
pay attention to the supply factors.