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Monetary policy is an important constituent of overall economic policy towards the pursuit of various economic goals, including expansion of employment, higher economic growth, and maintenance of price stability. Over the past century, the prominence of monetary policy has been on a steady rise, and presently, hardly a day goes by without some mention of monetary policy appearing in the headlines. Economists and market analysts are making considerable efforts towards continuous speculation about the likely future actions of the monetary authorities across the matured and the emerging economies. With development of a broad based financial market in India and greater integration with the rest of the world, monetary policy has assumed increasing significance in recent years. Banking sector plays a critical role in transmitting monetary policy action to spending decisions of consumers and investors, and ultimately affecting output and prices. Monetary policy, which involves regulation of money stock or short term interest rate, affects various kinds of economic and financial decision making, such as purchase of a house, car or consumer durables; starting up or expanding a business; investment in a new plant or equipment through its influence on cost and quantum of credit. Through its impact on the spending decisions of the public on goods and services, monetary policy imparts its influence on aggregate demand, and thus, on output and prices. Given the importance of banks in transmission of monetary action to spending decisions, and ultimately achieving the final objectives of economic growth and price stability, the present paper attempts to present the working of monetary policy to bankers and general public.
Monetary Policy of the Central Bank: Simplifying the Mystique
Recently, Dr. Y.V. Reddy, Governor, Reserve Bank of India (RBI) has highlighted greater challenges for monetary policy communication in a market oriented environment in India at present in view of the stakeholders becoming larger and wider and the monetary policy by itself assuming increasing complexity in terms of operating framework and instruments (Reddy, 2008). There is an increasing recognition of the importance of market expectations and public perceptions enhancing monetary policy effectiveness. In this perspective, the present paper attempts to promote better public understanding and seeks to answer what is it that the monetary authorities do, and how they do it?
*Assistant Adviser, Monetary Policy Department, Reserve Bank of India, Mumbai. The views expressed in the paper are strictly personal. Errors and omissions, if any, are the sole responsibility of the author. The usual disclaimers apply.
RBI (1998) provides detailed discussion on the conceptual and methodological issues related to monetary aggregates in India. Monetary policy involves regulation of money stock or the short term interest rate to attain monetary policy objectives such as stabilization of output and prices. 'money' refers to 'wealth'. As 'money' plays an important role in monetary policy. government debt management. there is a definite trend towards making monetary policy more and more sensitive to the objectives of attaining and maintaining output and price stability. we shall start with discussing what 'money' is. respectively. Broad money includes time deposits (fixed deposits) in addition to constituents of narrow money. let us now discuss the broad outline of monetary policy framework and sequence of steps involved in the conduct of monetary policy (Exhibit 1).CAB CALLING April-June. For them. because we cannot buy a meal or shirt with this form of assets without selling those for cash. Broad Monetary Policy Framework The role of monetary policy. across the countries. banker to government. economists and central Exhibit 1: Framework of Monetary Policy · Reserve Requirements Standing Facilities & Central Bank Refinance Rates Open Market Operations (including Repo) Moral Suasion Instruments · · · Operating Targets · · Bank Reserves Short-term Money Market Rates Intermediate Targets · · · Monetary/Credit Targets Long-term Interest Rates Foreign Exchange Rate Objectives · · · Price Stability Output/Employment Financial Stability 18 . In India. (i) narrow money. The rest of the paper presents the monetary policy framework in general. In Indian context. the objective of ensuring financial stability is also gaining increasing importance. When we say some have a lot of money. In view of greater integration of financial market both at home and across the geographical boundaries. we basically mean that they are so rich that they can buy almost anything they want. 'money' is the set of assets in the economy that is used regularly by the people to purchase goods and services from other people conveniently. broadly outlines the salient features of conduct of monetary policy in India. However. The measure of narrow money includes currency in circulation plus demand deposits (current account and other chequeable deposits) in the economy. In this sense. 2008 bankers use the word 'money' in a more specific sense. In this backdrop. has seen a fundamental transformation over time. Similarly. and (ii) broad money are widely used in the discussion of monetary policy. bank deposits against which cheques are drawn are as good as cash and can be treated as 'money'. the Reserve Bank of India is the monetary authority in addition to its other responsibilities including regulation and supervision of the banks. In the recent decades. The cash in our wallet is money because we can use it to buy a meal at a restaurant or a shirt from a store. other forms of assets such as a building or a car are not considered as money. narrow money and broad money are denoted as M1 and M3. as it enjoys considerable control on regulation of money stock through its monopoly over issue of currency. Glossary of terms related to conduct of monetary policy in India is presented in the Appendix. The responsibility for the conduct of monetary policy generally rests with the central bank of the country. Technically. and creation/ destruction of bank reserves. foreign exchange management. However. two forms of money stock viz. and guides how to read/interpret the monetary policy statements as announced by the RBI Governor.
2002). In general. April-June. Similarly. Timbergen's 'assignment rule' implies that the instrument of monetary policy should pursue a single objective of price stability which is most suitable for it. so that a single objective of monetary policy get entrenched into their economic system as a public commitment of the central bank. there has been a debate on assigning single or multiple objectives to monetary policy (Rangarajan. pursuing single objective is critricised on the grounds that it encourages conservatism on the part of the central bank and gives rise to policy bias towards low inflation. the desired level (rate) of the 'operating target' is arrived at based on the estimates of the desired level of 'intermediate target'. Arguments in favour of single objective are in terms of clarity of the goal. As a first step. current short term interest rate (operating target) combined with information on expected future short term interest rates influence the shape of medium term interest rates (intermediate target). The choice of 'intermediate target' is largely based on its close and predictable link with the final objectives as well as ability of the monetary authority to exercise reasonable control over it. the mode and frequency of their use and related issues in order to influence the 'intermediate target'. Depending on the objectives to be achieved as set in quantitative terms. ensuring commitment of the central bank to achieve this goal and enabling the public to evaluate the success of the central bank in terms of a single yardstick. low level of market integration. and financial stability including ensuring comfortable balance of payments conditions. Central banks in these countries have been given necessary autonomy to wield sufficient independence and flexibility over the management of interest rates and money supply towards fulfilling the 'inflation target'. After estimating the desired level/rate of intermediate targets. 1985). World over. the objectives are quantified in terms of inflation rate or output/employment growth (say 2 or 5 per cent). 19 . a consensus has emerged in the case of industrially advanced countries that monetary policy is best suited to pursing the goal of price stability. The relationship between money stock and bank reserves are derived from the 'money multiplier' equation (for details please see RBI. due to several considerations. lack of conclusive evidence supporting the claim of long run growth neutrality of monetary policy and the very measurement of potential output. monetary base particularly.CAB CALLING In the conduct of monetary policy. These monetary policy instruments alter the liquidity conditions in the system and accordingly influence operating targets such as bank reserves or short term interest rates in the desired manner. Hence. Another related issue pertains to conflict among few objectives. However. the ball rolling starts with preparing the set of objectives desirable to be achieved through monetary policy actions. Depending on the macroeconomic environment and global developments. Subsequently. bank reserves and short term money market rates are used as the 'operating targets'. Variation of interest rates also influences foreign exchange rate (another intermediate target) through its impact on cross-border capital flows. it is most important to note that the final objectives of monetary policy as discussed above are not under its direct control in most cases. output/employment augmentation. many developing and emerging economies prefer pursuing multiple objectives. Many countries. the operating procedure of monetary policy tactically decides the appropriate 'operating target' and the set of policy instruments. 2008 However. high susceptibility of the economy to domestic and external shocks. foreign exchange rate and interest have been used as intermediate targets by various central banks depending on the country specific situation. the first step in the formulation of monetary policy involves clearly defining its objectives. accordingly. the list of monetary policy objectives includes price stability. inter alia. which might be sub-optimal from the point of view of economic growth and social welfare. and necessary balancing in case of multiple objectives. RBI (1985) provides the technical details of the related exercise. For example. have also gone for direct targeting of inflation. To emphasize. the monetary authority has to rely on appropriate 'intermediate targets'. In recent times. On the other hand. Generally. foreign exchange swaps find wide application. an array of indirect instruments such as open market operations (OMO) including repo transactions in domestic securities. By now. money stock measures. Traditionally. beginning with New Zealand and followed by a sizeable number of countries both advanced and emerging. In the theoretical plane. appropriate growth rate of money stock consistent with achieving particular inflation rate and output growth rate is derived from the money demand equation. the task at hand boils down to employing the appropriate set of policy instruments in order to achieve the desired level for the operating target. instruments in the form of standing refinance facilities and statutory reserve requirements have been very useful in liquidity management. consistent level/rate of intermediate target is arrived at. as medium term interest rates consist of a series of short term interest rates over time. Country specific conditions as also evolving macroeconomic environment in an economy determine emphasis on either of these objectives.
Monetary policy instruments essentially influence liquidity conditions in the system and resultant variation in bank reserves defines the taking off for the monetary policy flight. which ultimately leaves its impact in achieving the final objectives. The lag structure comes into picture. institutional arrangements and level of development of the financial sector. consumer durables. Mishkin (1996) provides schematic descriptions of working of the individual channels of monetary transmission. these parameters have experienced steady transformation and modification over time with changing economic environment. This makes exports more costly and imports cheaper – compressing 'exports over imports' – and thus. institutional arrangements and development of the financial sector. which in turn affects aggregate demand explained by wealth effect and Tobin's 'Q' (asset price channel). Interest rate in the inter-bank money market is the focal point of central bank liquidity operations. Furthermore. Day-to-day liquidity management decisions. Banks play a very important role in monetary policy operations. Now. The Governor. Increase in interest rate augments international capital inflow. The propagation of monetary impulses through the interest rates as explained above is known as monetary transmission through 'interest rate channel'. Various dimensions of monetary policy operations vary across the countries depending upon the structure of the economy. Korea. In an open economy with free capital mobility. and thus. Israel and New Zealand. Thus. which in turn causes appreciation of domestic currency. the Euro Area. Estimation of appropriate amount of liquidity injection to influence the operating targets precisely is a very challenging task for the monetary authority. a 'monetary policy committee' takes collective decision on monetary policy. India. the 'credit channel' comes into picture. with developed financial market. keeping pace with changes in the structure of the economy. as depicted in Exhibit 1. Canada. There is also considerable variation in the decision making process across the central banks. banks' decision on lending rates based on the signals from the monetary authority (in the form of variation of bank reserves or policy rates) critically influence spending decisions. policy induced changes in the instruments result in desired changes in appropriate operating and intermediate targets. The analysis of monetary transmission mechanism is crucial for the conduct of effective monetary policy and its importance cannot be overemphasized. Here also. Similarly. targets and instruments of monetary policy evolve over time. This is true in case of India also. In the standard textbook approach. rests with a committee/group at senior/middle management level or at department level responsible for market operations. generally after 6 to 24 months. The preamble to 20 .CAB CALLING April-June. may be inimical to softlanding in terms of ultimate effect of monetary policy on output and prices. It describes the nature and strength of the influence of monetary action and the related lag structure of the effects. augments banks' deposits with the central banks (bank reserves) and reduces short term interest rates. imprudent behavior of the banking sector which pose threat to financial stability. On the other hand. objectives. Patra and Samantaraya (2007) provide a comprehensive account of monetary policy decision making in select central banks covering both matured and emerging economies. as monetary action affects final objectives after certain time lags. variation in interest rate affects asset prices. the Governor of the central bank solely take monetary policy decisions in terms of variation of policy instrument. which in turn affects spending decision for housing. the monetary shocks affect aggregate demand through the channel of 'foreign exchange rate' also. reducing aggregate demand. of course. In countries such as Australia. as evident in the recent global financial turmoil triggered by the 'subprime' crisis in the United States. For example. Conduct of Monetary Policy in India As discussed in the previous section. Within a country also. receives suggestions and advices formally or informally for facilitating informed judgment. This puts downward pressure on output and prices. 2008 based on central bank credibility reinforces policy effectiveness. open market purchase of government securities injects liquidity in the banking system. variation in bank reserves and short term interest rate set the tone for medium term interest rate. in Brazil. suitable expectation formation by the market and public in general Monetary Transmission Mechanism The monetary transmission mechanism delineates the process through which monetary policy shocks (actions) administered through changes in policy instruments and operating targets influence the final objectives. and shapes strength of monetary policy – altitude of the flight. Sweden. Of course. however. the United Kingdom and the United States. Moreover. expanding production facilities or working capital requirements. tight monetary policy characterized by increase of short term interest rate raises medium term interest rates and dampens aggregate demand through curtailing investment and consumption spending. through the impact of monetary policy on net worth of firms (balance sheet channel) and on bank deposits and credit (bank lending channel).
while money aggregates (M3) still acts as an important indicator. the policy regime was severely constrained by heavily regulated regime consisting of high level of deficit financing. Chakravarty Committee (RBI. appropriate liquidity is maintained in the system so that adequate/legitimate requirements of credit are met. As enunciated in various policy documents of the Reserve Bank. capital flows. in the evolving process of conduct of monetary policy in India. administered interest rates and primitive financial sector. More details of these instruments are presented in the Appendix. During economic slowdown and subdued inflation. Monetary policy in the form of 'credit planning' – regulating the quantum and distribution of credit flow to various sectors of the economy in consonance with national priorities and targets – assumed greater importance since adoption of philosophy of 'social control' and nationalization of banks in late 1960s. exchange rate. credit. phasing out automatic monetization of government deficit through issue of ad hoc Treasury Bills. a sequence of phases can be clearly discernable. generally. ongoing financial openness and sweeping changes in the financial sector reoriented the role of interest rates vis-à-vis the quantity variables. It consists of three sections. the stance stresses on limiting credit flow only to meet the legitimate requirements such as supporting investment and export demands. In the recent years. information content of all these indicators are monitored for assessing the overall macroeconomic environment and evolving global development. Mid-term and Third Quarter Reviews. although some overlapping across the phases cannot be ruled out. Particularly. These initiatives included development and deepening of key segments of the financial market. Thus. the policy stance generally emphasizes adequate flow of credit to augment consumer and investment spending. As discussed in the previous section. in this new framework. October and January. In alignment with the policy stance. Consistent with the stance. priority sector lending. In the backdrop of the above impediments. Section I reviews and assesses 21 . Ultimately. With development of a broad-based financial market with closer global inter-linkages. in situations of high inflation and overheating economy. in the month of July. By the late 1990s. As recommended by the Chakravarty Committee. inflation. appropriate monetary policy stance is framed. 1934 sets out the broad outline of the objectives as. 1985) comprehensively reviewed the functioning of the monetary and banking systems and guided far-reaching transformation in the conduct of monetary policy in India. It was felt that April-June. etc. including with regard to flow of bank credit. are pooled together for drawing policy perspectives. adoption of prudential norms in alignment with global best practices towards enhancing financial stability. How to Read RBI's Monetary Policy Statement The Governor of RBI announces the Annual Policy Statement in the month of April every year for the corresponding financial year followed by First Quarter. the Reserve Bank formally adopted a 'multiple indicator' approach in which information on interest rates. shrinks/enhances the credit creating capacity of banks – so as influence investment and consumer spending as per the policy stance. Several reform initiatives and institutional changes as part of the comprehensive reforms introduced since early 1990s further strengthened the scope of monetary policy operations. Relative emphasis was placed on either of them based on the prevailing economic conditions. respectively. there has been greater reliance on MSS and CRR to withdraw liquidity which are of the enduing nature. 2008 in the evolving situation. LAF basically addresses temporary liquidity requirements. these instruments attempt to withdraw/inject liquidity in the banking system – and thus.CAB CALLING Reserve Bank of India Act. Since April 1998. On the contrary. in the recent period. a consideration for financial stability in terms of quality of bank credit is also an important input for the evolving policy stance. the RBI undertakes active demand management of liquidity through open market operations (OMO) including market stabilization scheme (MSS).. inflation control and expansion of bank credit to support economic growth constituted as the dominant objectives of monetary policy in India. monetary aggregates. From historical perspective. information pertaining to other monetary and financial indicators should also be taken into account while formulating monetary policy. 'monetary targeting with feedback' was introduced as the basic framework of monetary policy. Based on this assessment and projection of inflation and output growth for the ensuing year. freedom to banks in determination of lending and deposits rates except a couple of segments. Our discussion in this section would be limited to the Governor's Statement on monetary policy. 'financial stability' is included as another important objective of monetary policy in India. this framework suggested desirable growth of money stock consistent with output and inflation objectives of the RBI. "to regulate the issue of Bank notes and keeping of reserves with a view to securing monetary stability in India and generally to operate the currency and credit system of the country to its advantage". However. liquidity adjustment facility (LAF) and recourse to variation in cash reserve ratio (CRR). as a response to unprecedented international capital inflows in recent years.
CRR. the working of monetary policy in India with the objective of making it understandable for the bankers and general public. appropriate growth of money supply is projected while taking on board demand for bank c re d i t f ro m d i ff e re n t sectors. Conceptual and theoretical issues relevant to formulation of monetary policy stance are also touched upon. the evolving macroeconomic and global developments in terms of a stock-taking of output and inflation scenario followed by a brief review of monetary and credit growth along with the determining factors. Better understanding of the importance and content of policy announcements by the bankers and general public would facilitate improvements in picking up the policy signal appropriately and correct expectation formation. behaviour of the current and capital account. etc. and the movement of exchange rates as also highlights developments in the global economy counting performance of world output. Section III of the statement on monetary policy enumerates specific policy measures in terms of variation in the Bank Rate. likely outturn of the government borrowing requirements are assessed. For example. 2008 Statement 2005-06 puts the stance of monetary policy in terms of "provision of appropriate liquidity to meet credit growth and support investment and export demand in the economy while placing equal emphasis on price stability. Appropriate nuances are used to explain the policy stance so that the underlying conditions are reflected. provision of appropriate liquidity to meet genuine credit needs and support export and investment demand in the economy. equity market and corporate bonds market are also highlighted." The second statement clearly assigns a higher weight for the objective of price stability and focuses on meeting genuine credit requirements signifying relative withdrawal of accommodations. In view of this. Finally. state of the global financial system and monetary policy stance of major economies. Given the influence of government borrowing on market interest rates and credit behaviour of banks." On the other hand. reflecting the actions undertaken in alignment with the monetary policy stance. prices.CAB CALLING April-June. emphasis was on explaining conduct of monetary policy in simple language. Behaviour of the key segments of the financial market. Annual Policy Conclusions The present paper attempted to explain. likely growth of currency and deposits. in simple terms. Without much technical vigor. reverse repo/repo rates under LAF. Section I summarizes performance of imports and exports. government securities market. As noted by Mohan (2005). India's linkages with the rest of the world have been increasing both in terms of trade and financial flows. stance in the Mid-term Review of Annual Policy Statement 2005-06 was "consistent with emphasis on price stability.” 22 . and borrowing requirement of the government. In the backdrop of the macroeconomic assessment and taking into account emerging economic scenario. Over the years. “the effectiveness of monetary policy will crucially depend on how well the public and market participants understand the central bank signals. the overall monetary policy stance is presented in Section II. namely money market. Based on the projections of output growth and inflationary outlook.
23 . the RBI endeavours to keep the 'call money rate' is generally moves within the corridor formed by the reverse repo rate/repo rate under the LAF. in response to unprecedented surge in foreign capital inflows. CRR is required to be maintained as average daily balance on a fortnightly basis. Presently. as a proportion to their respective net demand and time liabilities (NDTL). Inter-bank call money market enables banks to bridge their short-term liquidity mismatches arising out of the day-to-day operations. refinance facilities are gradually de-linked from the Bank Rate. At present. When the market is in a surplus liquidity mode.0 per cent. With liquidity management operations. But. LAF enables RBI to modulate short term liquidity under varied financial market conditions in order to ensure stable interest rates in the overnight money market. the RBI is able to influence 'call money rate' which in turn acts as a signal for other market rates. in addition to banks. With emergence of repo/reverse repo rates under LAF as the effective signaling rates. it serves as a signal to the market and business community about tight or easy monetary policy. RBI injects liquidity through repo operations by purchasing government securities. in tight liquidity conditions. which enables banks to mitigate their short-term mismatches in cash management on a daily basis with RBI. On the other hand. instituted in June 2000. in general. With some adjustment with regard to depreciation and net factor income from abroad. With raising or lowering of the Bank Rate. the medium term policy was to gradually reduce CRR to its statutory minimum.0 per cent. At present. LAF Liquidity Adjustment Facility (LAF) of the RBI is a mechanism. Through its monopoly power over supply of bank reserves. This is the first and foremost link in the transmission of monetary policy action. primary dealers (PDs) are also eligible to participate in the call money market in India. reverse repo rate and repo rate under LAF are placed at 6. 1934. The Bank Rate was reactivated as the central bank signaling rate since April 1997 by linking it to various rates of refinance. 2008 Bank Rate is the rate of interest at which the Reserve Bank is prepared to buy or rediscount bills of exchange or other commercial papers eligible for purchase under the RBI Act.CAB CALLING Appendix: Glossary of Terms Bank Rate April-June. It measures the value of all final goods and services produced within an economy during a given period of time. Presently. in a year. CRR was reactivated since December 2006 as a monetary policy instrument in the sterilisation process. the RBI injects or withdraws liquidity by releasing reserves to or sucking reserves from the banking system. CRR Cash reserve ratio (CRR) is a legal obligation on scheduled commercial banks to maintain certain reserves in the form of cash with the RBI. Call Money Rate 'Call money rate' is the rate of interest at which commercial banks borrow from one another on an overnight basis without recourse to any collateral. Thus. CRR is set at 9. the RBI encourages banks to place liquidity with it through reverse repo operations against the sale of government securities with an agreement to buy it back. respectively. it represents the national income. By variation of CRR. both reverse repo and repo are on overnight basis. In the post-reform period. The LAF operates through daily reverse repo and repo auctions on a fixed rate basis that sets a corridor for the inter-bank call money rate. the cost of borrowing from RBI for the banks becomes dearer or cheaper.0 per cent and 9. GDP Gross domestic product (GDP) is a commonly used indicator measuring aggregate economic activity in an economy.
9. (2008): “The Virtues and Vices of Talking about Monetary Policy: Some Comments”. PP. the Reserve Bank enhances (tightens) liquidity in the market. Y. Money raised under the MSS is held in a separate identifiable cash account maintained and operated by the Reserve Bank and the amount held in this account is appropriated only for the purpose of redemption and/or buyback of the Treasury Bills and/or dated securities issued under the MSS. RBI Bulletin. Reddy. at par with the other government stock OMO Open Market Operations (OMO) involves buying and selling of government securities by the RBI to regulate the liquidity in the banking system.28. Samantaraya. RBI (1998): Report of the Working Group on Money Supply: Analytics and Methodology of Compilation (Chairman: Y. 5464. Ph. the market stabilisation scheme (MSS) was introduced in April 2004 to equip the RBI with an additional instrument of liquidity management. Under the MSS. 911 – 919. New Delhi.V. Rangarajan. 6. Mankiw. 4.D. 3. outright OMO has a relatively enduring impact on market liquidity. Reserve Bank of India. the cost of market stabilization bonds issued under MSS is borne by the Government of India. 10. Frederic S. Vol. This also facilitates smooth government borrowing. Bookwell. By purchasing (selling) government securities from (to) banks. 5. Michael Debabrata Patra and Amaresh Samantaraya (2007): “Monetary Policy Committee: What Works and Where”. has an impact on the growth money and credit in the economy. At present. SLR Statutory liquidity ratio (SLR) is a legal obligation on banks to invest a certain proportion of their liabilities (NDTL) in specified financial assets including cash. Mishkin. and B. C. various issues.1 – 26. gold and government securities. NBER Working Paper No. Reserve Bank of India. C. July. RBI: Annual Report. Dryden Press. Mumbai. Treasury Bills and dated securities of the Government of India are issued. Rangarajan. Thesis submitted to the University of Hyderabad. References 1. Rakesh (2005): “Communications in Central Banks: A Perspective”. PP. RBI (1985): Report of the Committee to Review the Working of the Monetary System (Chairman: S. 2. (1996): “The Channels of Monetary Transmission Mechanism: Lessons for Monetary Policy”. October. Variation of SLR alters demand for bank reserves. It is widely used as a proxy to measure the general price inflation in the economy. Mumbai. As compared to repo operations under LAF. (2002): Leading Issues in Monetary Policy.CAB CALLING MSS April-June.2. 2008 In the wake of very large and continuous capital inflows and the need for modulating surplus liquidity conditions of enduring nature. Chakravarty). However. N. 7. MSS securities are also traded in the secondary market. RBI Occasional Papers. 8. Mohan. Dholakia (1979): Principles of Macroeconomics. while promoting soundness in the banking system by ensuring sizeable investment in safe assets. 11. WPI The wholesale price index (WPI) in India captures general price movements on weekly basis for all trade and transactions.H. Reddy). It is published with the shortest possible time lag of two weeks.V. Tata McGraw-Hill Publishing Company Limited. PP. 24 . 1117 – 1125. The current series of WPI with 1993-94 as base year was introduced in April 2000. No. Amaresh (2003): Transmission Mechanism and Operating Procedure of Monetary Policy in India. and hence. Gregory (1998): Principles of Economics. RBI Bulletin. New Delhi. SLR is placed at 25 per cent.
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