MONETARY POLICY

MADE BY
GUNJAN GIRI
ANCHAL JAIN
MEANING OF MONETARY POLICY

• It is a plan of action initiated by the monetary authority to

control and
Regulate the money supply and credit in the economy . In all
there are 8 major instruments of monetary policy which can
be represented with the help of following flow chart
QUANTATIVE MEASURES

• Bank rate
• It is rate at which RBI rediscount bills of exchange presented
by the commercial bank. When the commercial banks are
faced with the shortage of cash reserve, they approach the
Central Bank to get their bill rediscounted. It is the method of
borrowing from central bank.
• Open market operations
CRR (CASH RESERVE RATIO)

The cash reserve ratio is the percentage of total deposits which commercial bank are
required to maintain in the form of cash reserve with the central bank. The objective
of cash reserve is to prevent shortage of cash for meeting the cash demand by the
depositor.
SLR(statutory liquidity ratio)
In India, the RBI has imposed another reserve Requirement in addition to CRR. It is
called SLR. The SLR is the proportion of the total deposits which commercial banks
are statutorily required to maintain in the form of liquid assets in addition to cash
reserve ratio. This measure was undertaken to prevent the commercial banks from
liquidating their liquid assets when CRR is raised.
QUALITATIVE MEASURES

• Credit rationing
When there is a shortage of institutional credit available for
the business sector, the large and financially strong sectors or
industries tend to capture the lion’s share in the total
institutional credit. As a result, priority sectors and essential
industries are starved of necessary funds while the bank credit
goes to the non-priority sectors. This is done with a view of
making banking credit available to the essential and priority
sectors.
CHANGE IN LANDING MARGINS

• The bank advance money more often than not against a

mortgage of property land, building, jewellery, stocks of
goods and so on. The banks provide loans up to a certain
percentage of the value of the mortgage property. The gap
between the value of the mortgage property and amount
advanced is called ‘lending margin ‘.the central bank is
empowered to increase the lending margin with a view to
decresing the bank credit
MORAL SUASION

• The moral suasion is a method of persuading and convincing

the commercial banks to advance credit in accordance with
the directives of the central bank in overall economic interest
of the country. This method is adopted in addition to
quantative and other qualitative methods, particularly when
effectivness of other methods is doubtful.
DIRECT CONTROL

Where all other methods prove ineffective, the monetary

authorities resort to direct control measures with clear
directive to carry out their lending activity in a specified
manner. There are however rare instances of use of direct
Control measures.
THANK YOU