Monetary

Policy
MB201 – Case Study
 Meghashree Chatterjee
Simran Chauhan
Team

Kiran P Nair
Wasfa Hassam
Archana Yadav
Minakshi Kumari
Amit Negi
Bikash Bora
Kali Prasad Kar
Saikh Asraf
Sital Kant Sharma
 Introduction

Monetary Regular Availability of Money Supply

1 Inflation

2 Unemployment
Types
Objective
1 Expansionist
Currency
3
Exchange Rate
2 Contractionary
 Maintaining Cash Flow
in the market.

01 CRR
(Cash Reserve Ratio)
Ensuring Transparency
w.r.t Borrowing And
Lending In The Credit
02 SLR Market.
(Statutory Liquidity Ratio)

Allows Banks to earn

some profits in the form
Hence, Controlling the Inflation in India. of interests.
 How RBI exercise CRR and SLR to decrease
money supply?

Both SLR and

1 When inflation rises in an economy, government rises up CRR & SLR.
CRR are the
components of
monetary policy. 2 The higher the rates, the lower is the liquidity with the banks. During
high levels of inflation, attempts are made to reduce the flow of
money in the economy.

3 Lowering the loanable funds available with the banks slows down
investment and reduces the supply of money in the economy. As a
result, the growth of the economy is negatively impacted. However,
this also helps bring down inflation.
 SLR
DEPOSIT
CRR- No interest (CRR)

SLR- Interest

CRR & SLR maintned daily as percentage of NDTL on

last friday of secong preceding fortnight

1990
CRR 15%
Loanable fund Inflation Growth Money supply
SLR 38.5%
2018
CRR 4% Interest rate
SLR 19.5%
How RBI exercise CRR and SLR to increase money supply

SLR Satutory Liquiduty Ratio

CRR Cash Reserve Ratio

When exactly does the government needs to increase the money supply into the market

₹
When RBI wants to
pump funds into the
system
Deflation
 Example

Due to COVID-
19 RBI
decreased CRR
to 3% of NDTL Exports and Imports
Due to the
decrease in
CRR liquidity
of banks
increased.

Impact on Common
CRR of banks
Public Impact on Investment
were increased
to 4% of NDTL
effective from
22nd May 2021
Impact of decreased CRR and SLR
Importance of Open Market Operations

Open market operations are one of the

01 key tools

Control liquidity conditions when

02 tightened during a financial year

The RBI smoothens the availability of

03
money through the year

Open market purchases by the RBI

04
give the government a helping hand
 Possession of G-Secs

• G-SEC’s can be held in the following two forms:

1
Physical Form
In the form of stock certificate.
2
Digital Form
In the form of: (1) SGL Account
(2) Gilt Account
Issue of G-Sec
Buyback of G-Secs
Issues by RBI through
auctions in consultation
with the government. Process used by RBI to buy back its
existing securities before maturity.

Reasons for Buy back:

1 Reduction of Cost

2 Improved Liquidity
 What is Operation Twist
Selling of short-term securities and buying
of long-term securities.

Operation Twist is
managed by RBI to bring
down long-term interest

₹
rates and support short-
term rates.
Thanks!