2. CONCERNED WITH THE SUPPLY OF
MONEY IN THE ECONOMY AND THE
COSTS OF BORROWING IT
• Aims at controlling the money supply in the
economy to control excess inflation.
• Is implemented through the RBI
• Objectives:
a) Stability of employment and prices
b) Economic Growth
c) Balance in international payments
3. REFERS TO THE USE OF
GOVERNMENT SPENDING AND
TAXING POWER TO ACHIEVE
MACROECONOMIC OBJECTIVES
• Economic growth is largely influenced by the
fiscal policy
4. GDP = C + I + G + (X-M)
Where
C: Consumption of goods and services by individuals
I: Investment in capital goods by the private sector
G: Government Expenditure
X: Export Receipts
M: Import Expenditure
• GDP is used by economists as a measure of
economic growth
5.
6. • SLR is the percentage of NDTl’s (Net Deposits and
Time Liabilities) that commercial banks needs to
maintain with the RBI in the form of cash or gold or
government approved securities.
• Is basically meant to ensure solvency of the bank.
• SLR rate is determined and maintained by the RBI in
order to control the expansion of bank credit.
• Generally complied by investing in G-Secs.
• Present SLR rate is 25 %.
7. • CRR is the percentage of NDTLs (Net Deposits and
Time Liabilities) that banks have to keep as cash with
the RBI.
• Primary tool to drain out the excessive money from the
banks.
• If RBI increases the CRR, the amount available with the
banks for lending operations comes down.
• If RBI decides to reduce the CRR, the amount available
with the banks for lending operations increases.
• Present rate is 6%
8. • Commonly known as the Repo Rate.
• It is the rate at which RBI lends to commercial banks.
• It is a short-term measure.
• Hike in Repo Rate makes it expensive for banks to
lend.
• Present rate is 5.75%
9. • Commonly known as the Reverse Repo Rate.
• It is the rate at which RBI borrows from
commercial banks.
• It is a short-term measure.
• Hike in Reverse Repo Rate drains out excess
liquidity from the market.
• Present rate is 4.50%
10. London Interbank Offered Rate
An interest rate at which banks can borrow funds from
other banks in the London interbank market.
LIBOR is the world's most widely used benchmark for
short-term interest rates.
It is important because it is the rate at which the
world's most preferred borrowers are able to borrow
money.
It is also the rate upon which rates for less preferred
borrowers are based.
Example: A multinational corporation with a very good
credit rating may be able to borrow money for one year
at LIBOR plus 4 -5 bps
11. Mumbai Interbank Offered Rate
An interest rate at which banks can borrow funds
from other banks in the Indian interbank market.
1-day, 14-day, 1 month and 3 month MIBORs
Benchmark rate for the call money market.
Benchmark rates for the majority of money market
deals made in India
