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Monetary

Policy

JYOTI MANKELA(MBA_11)
JITENDAR PAL SINGH(MBA_10)
KALAISELVAN(MBA_12)
Macroeconomic Policies

Fiscal Policy Monetary Policy


Related to budget, Related to money supply,
government exchange rate control and
expenditure, taxation bank rate control
Monetary Policy
Regulation of supply of Money and Cost and Availability of Credit in the
economy

Purpose of Monetary Policy

Maintain price stability, ensure adequate flow of credit to the productive


sectors of the economy and overall economic growth

Variables affected by Monetary Policy in the economy

 Interest Rates
 Liquidity
 Credit Availability
 Exchange Rates
Measures of money stock

RBI employs four measures of money stock namely ---- M1, M2, M3, M4

M4 M3 + Total post office deposits

M3 M1 + Time (fixed) Deposits with the banks.

M2 M1 + Post office savings bank deposits

Describes money supply. Its components are currency


M1 with the public and deposits.
Monetary Policy – RBI’s role

Demand for Demand for


Money goods/services
Monetary Policy – Terminology
Inflation ●
Inflation refers to a persistent rise in prices

Minimum rate at which the central bank provides loans to


Bank Rate

commercial banks

Amount of money that banks must set aside with RBI against

Cash Reserve Ratio (CRR) their deposits

Statutory Liquidity Ratio Percentage of bank funds to be maintained in government and


(SLR) approved securities

Rate at which RBI lends to other banks against government


Repo Rate

securities

Reverse Repo Rate Rate at which RBI borrows from other banks

Open Market Operations


Purchase and sale of securities in the open market

(OMO)
Current Rates

Bank Rate 6.0% ●

CRR 6.0%

SLR 24.0%

Repo Rate 6.25% ●

Reverse Repo
Rate 5.25%

Monetary Policy – Influence

Target Variables

Policy Variables -Inflation


-Interest rate
- Money supply -Real GDP
- OMO: Liquidity conditions -Employment
- policy rates (CRR, repo etc.) -Consumption
-Savings
-Investment
Developmental and Regulatory Policies(2010)

Basel III comes into effect.

Financial Stability Report

Introduction of Base
rate in the place of BPLR

High Level Task Force on MSMEs


SOME SNAPSHOT OF SECOND QUARTER REVIEW OF
MONETARY POLICY

Convergence of
Roadmap for
Indian Accounting
Provision of
Grievance redress Standards with
Banking Services in
mechanism International
Villages with
prevalent in banks Financial
Population
Reporting
of over 2000
Standards
13 Limitations – Monetary Policy

Cannot simultaneously stimulate economic demand to reduce unemployment and


restrain demand to combat inflation

Monetary policy is restricted by the impact of other government actions, especially


Fiscal policy, i.e. decisions about government expenditures and taxation

Problems of an inflexible labour market, inadequate infrastructure and, most important,


fiscal policy whose discipline is open to question limits the effectiveness of the
Monetary policy

Monetary Policy cannot work in isolation!!


Thank You
Websites for reference:
http://www.rbi.org.in
http://eaindustry.nic.in/

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