Monetary Magnitudes

M1 = Currency with public+ Demand deposits with banks+ Other Deposits with RBI M2 = M1+ Post Office Deposits M3 = M1+ Time Deposits with Banks M4 = M3+ Total Post Office Deposits

.Changing Cash reserve Ratio ‡ The bank have to keep certain amount of bank money with themselves as reserves against deposits. ‡ The increase in the cash rate leads to the contraction of credit only when the banks excess reserves. ‡ The decrease in the cash rate leads to the expansion of credit and banks tends to make more available borrowers.

 Cost of credit. .  Monetary policy and public investment. ‡ Monetary policy and investment.  Monetary policy and private investment. ‡ Allocation of investment funds.Raole Of Monetary Policy in Economic Growth ‡ Monetary policy and savings.

‡ ‡ ‡ ‡ ‡ Instruments Discount Rate (Bank Rate) 2.Operation of Monetary Policy ‡ 1. Open Market Operating ‡ Target Monetary Base Bank Credit Interest Rates ‡ ‡ ‡ ‡ Intermediate Target Monetary Aggregates(M3) Long term interest rates .Reserve Ratios 3.

‡ Ultimate ‡ Goals Total Spending Price Stability ‡ Etc. .

5 per cent.0 per cent. ‡ Cash reserve ratio (CRR) kept unchanged at 5. respectively.Monetary Measures As on 18th April 2006: ‡ Bank Rate kept unchanged at 6. As on 15th Oct 2006: Policy Rates ‡ Bank Rate: 6% ‡ Repo Rate: 7% ‡ Reverse Repo Rate: 6% Reserve Ratios ‡ CRR: 5% ‡ SLR: 25% .0 per cent.5 per cent and 6. ‡ Reverse Repo Rate and Repo Rate kept unchanged at 5.

Monetary Policy ‡ Regulation Of Supply Of Money And Availability Of Credit In The Economy. Variables Affected By Monetary Policy ‡ Interest Rates ‡ Liquidity ‡ Credit Availability ‡ Exchange Rates . Purpose ‡ Maintain Price Stability and ensure adequate flow of credit to the productive sectors of economy and overall economic growth.

75% .25% Reverse Repo Rate SLR 25% 3.9% Bank Rate Repo Rate 5.CURRENT RATE Inflation CRR 6% 6% 9.

Growth: GDP growth is placed at 8% under assumption: ‡ Normal monsoon ‡ Good performance of the industrial and services sectors on the back of rising domestic and external demand .

Growth: http://www.aspx?Id=5602&Mode=0

about Rs.500 crore of excess liquidity will be absorbed from the system. . 12.00% Impact: ‡ Higher percentage of fresh deposits with RBI ‡ Lower liquidity in the system ‡ RBI has signalled that though it wants to tighten liquidity it also wants to keep ample liquidity to meet the outflows ‡ As a result of the increase in the CRR.Cash Reserve Ratio (CRR): ‡ Cash reserve ratio (CRR) increased by 25 bps to 6.

‡ Policy instruments will be further aligned in a manner consistent with the evolving state of the economy. ‡ Government borrowing requirements and the private credit demand will be met. ‡ The recovery process will be sustained. .Outcomes of Monetary Measures: ‡ Inflation will be contained and inflationary expectations will be anchored.

. velocity of circulation of money during inflation.RBI s Role Monetary Policy ‡ Demand for money Instruments such as CRR.OMO & Bank Rate. Control over money supply.

RBI s Role Monetary Policy ‡ Demand for money .

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