Monetary Policy Of India PRESENTED BY: NILOY DAS MBA, 36

List of Contents Introduction Of RBI What is Monetary policy? Goals/Objectives of Monetary Policy Instruments/Tools Of Monetary Policy Quantitative Measures Qualitative Measures Highlights of Monetary Policy 2012-2013 Limitations Of Monetary Policy

Reserve Bank Of India The Central Bank Of The Country-RBI. Established In 1935 With a Share Capital Of Rs. 5 corers on the basis of the Hilton Young Commission. The Share Capital was Divided into Rs. 100 each fully paid up which was entirely owned by private shareholders in the beginning. RBI was nationalized in 1949.

What is Monetary Policy? “Any conscious action undertaken by the monetary authorities to change the quantity, availability or cost.., of money. Monetary policy is essentially a program of action undertaken by the monetary authorities generally the central bank, to control and regulate the supply of money with the public and the flow of credit with a view to achieving the objectives of general economic policy

Objectives Of Monetary Policy Maintain price Stability. Flow of credit to the productive sectors of the economy. Stability for the national currency. Growth in employment and income. To promote and encourage economic growth in the country.

Instruments of Monetary Policy

Quatitative Instruments Open Market Operations (OMO): It means the purchase and sale of securities by the central bank of the country. The OMO is the most powerful and widely used tool of monetary control. Bank Rate: Bank rate is the rate at which the central bank rediscounts the bills of exchange presented by the commercial banks. For practical purposes bank rate is the rate which the central bank charges on the loans and advances to the commercial banks.

The Cash Reserve Ratio (CRR): Cash Reserve Ratio is the percentage of total deposits which commercial banks are required to maintain in the form of cash reserve with the central bank. Statutory Liquidity Requirement (SLR): The SLR Is that proportion of the total deposits which commercial banks are required to maintain with them in the form of liquid assets (cash reserve, gold and govt. bonds) in addition to CRR.

Qualitative Instruments Credit Rationing: Under this two measures are adopted: Imposition of upper limits on the credit available to large industries and firms. Charging a higher interest rate on bank loans beyond a certain limit. Change In Lending Margins: The banks provide loans only upto a certain percentage of the value of the mortgaged property. The gap between the value of the mortgaged property and amount advanced is called ‘lending margin’.

Moral Suasion: The moral suasion is a method of persuading and convincing the commercial banks to advance credit in accordance with the directive of the central bank in the economic interest of the country. Direct controls: Where all other methods prove ineffective, the monetary, authorities resort to direct control measures with clear directive to the banks carry out their lending activity in a specified manner.

Highlights of Monetary Policy 2012-2013 The Reserve Bank announces the following policy measures: Bank Rate 9.00% decreased from 9.50% to 9.00% Cash Reserve Ratio (CRR) 4.25% .Decreased from 4.50%. Statutory Liquidity Ratio (SLR) 23%

Limitations Of Monetary Policy The time lag : The first and the most important limitation in the effective working of monetary policy is the time lag. i.e. time taken in chalking out the policy action, its implementation and working time. Problem in forecasting : The formulation of an appropriate monetary policy requires a reliable assessment of the magnitude of the problem-recession or inflation- as it helps in determining the appropriate policy measures.

Cont…… Under Development of money and capital markets : The effectiveness of monetary policy in less developed countries is reduced considerably because of the underdeveloped character of their capital and money markets.

Conclusion After discussing all those things we can say Monetary policy is the process by which the monetary authority of a country control the supply of money, often targeting a rate of interest for the purpose of promoting economic growth and stability.

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