MONETARY POLICY IN ACTION

Shrirang Shirodkar 05305007

Alok Jadhav 05305041
John Kati 05305046
Sandeep Shelke 05305402

Under the guidance of

Prof. K. Narayanan
Agenda

 Introduction
 Annual Policy Statement
 First Quarter Review
 Mid Term Review
 Third Quarter Review
 Recent developments
 References
Introduction

 What is Monetary Policy?

 Types of Policies
 Objectives
 Monetary Measures
Objectives

 Inflation Control
 Credit Growth
 Employment
 Price Stability
 Economic Growth
Measures

 Least Inflation Policy

 Interest Rates
 CRR and SLR
 Monetary Base
 Reserve Requirements
Annual Statement of
Monetary Policy 2005-06
 Monetary developments in 2004-05
 GDP placed at 6.9%
 Annual inflation rate stood at 5%
 Money supply (M3) increased by 12.8%
 Increase in non-food credit
 Financial markets generally stable
 Widening of trade deficit
 Increased risks in global financial markets
Stance of Monetary Policy

 Factors to be considered
 Adequate credit growth needs to be ensured
 Trends in capital market indicate surplus
 Growth may get moderated by oil markets
 Significantly higher borrowings
 Heavy growth in non-food credits
Stance of Monetary Policy

 GDP growth placed at 7%

 Inflation rate at 5-5.5%
 Projected expansion of M3 at 14.5%
 Credit increase by 19%
 Key Points
 Provision of suffice liquidity for credit growth
 Emphasis on price stability
 Interest rate conducive to stability and growth
Monetary Measures

 Bank rate kept unchanged at 6.0%

 Reserve Repo Rate increased by 25 basic
points to 5.0%
 Cash Reserve Ratio (CRR) kept unchanged at
5.0%
Quarterly Reviews

 The Annual Policy Statement, proposed

quarterly reviews of Monetary Policy.
 Benefit
 To take specific measures as the evolving
circumstances warrant.
 Mainly consist,
 Review of Macroeconomic and Monetary
Developments in the previous quarter.
 Stance of Monetary Policy for the remaining part of
year.
First Quarter Review 2005-06
 Key Developments
 Increase in index of Industrial Production.
 Continued good performance of corporate sector.
 Good growth in manufacturing output.
 Improved level of business confidence.
 Increase in credit of scheduled commercial banks .
 Inflation remained on expected lines.
 Oil prices in the international markets remained high.
 Stance of Monetary Policy
 No major change from the Annual Policy Statement.
 Respond to evolving situations as per unfolding of risks.
Mid Term Review of 2005-06

 Monetary Developments
 Oil prices in international markets remained high
 Increase in overall industrial growth
 Non-food credit growth high
 Stance of Monetary Policy
 Maintain appropriate liquidity to meet credit needs
 Keep a watch on the evolving inflationary scenario
 Take prompt measures, to stabilize inflationary
expectations
Third Quarter Review 2005-06

 Monetary Developments
 Money supply
 Financial markets
 Export growth
 Risky profiles
 Inflation
 Stance of Monetary Policy
 Price Stability
 Export and Investment
 Liquidity
Recent developments
 Liquidity crunch raising concerns about the economy’s
capacity to sustain the recent high-growth rates.
 Banks demanding cut in the cash reserve ratio (CRR) to
infuse liquidity.
 RBI also exploring the possibility of releasing the excess
funds maintained under the statutory liquidity ratio
(SLR).
 Of Late, liquidity position appears to have improved with
the RBI resorting to the reverse repo window.
 RBI’s purchase of foreign exchange inflows for nearly two
months has also led to injection of liquidity into the
system.
References

 RBI Monetary Policy Statements

 http://rbi.org.in
 Indian Express (April 3, 2006)