This document discusses monetary policy in India as administered by the Reserve Bank of India (RBI). It provides background on the RBI, including noting that Dr. Raghuram Rajan is the current governor. It defines monetary policy and notes that RBI announces policy twice yearly to regulate price stability. The objectives of monetary policy are listed as economic growth, full employment, credit flow, price stability, and exchange rate stability. Both quantitative and qualitative tools are discussed, including repo and reverse repo rates, open market operations, cash reserve ratio, statutory liquidity ratio, bank rate, moral suasion, direct action, and regulating consumer credit. Current rates are provided.
2. CD Deshmukh
The First Indian Governor of
Reserve Bank of India (RBI)
Dr. Raghuram Rajan
Present Governer of
Reserve Bank of India (RBI)
3. Monetary policy- Meaning
The part of the economic policy
which regulates the level of money
in the economy in order to achieve
certain objectives.
In INDIA,RBI controls the
monetary policy. It is announced
twice a year, through which
RBI,regulate the price stability for
the economy.
1.slack season policy April-September
2.Busy season policy October-March
7. Bank rate
Open market operations
Cash reserve ratio (CRR)
Statutory liquidity ratio (SLR)
Quantitative measures
8. Quantitative measures
Bank rate :
Bank Rate is the rate at which central bank of
the country (in India it is RBI) allows finance to
commercial banks. Bank Rate is a tool, which
central bank uses for short-term purposes.
9. Open market operations
Quantitative measures
An open market operation (also
known as OMO) is an activity by a
central bank to buy or sell government
bonds on the open market.
10. Cash reserve ratio (CRR)
Quantitative measures
This serves two purposes. It
ensures that a portion of
bank deposits is totally risk-
free.
It enables that RBI control
liquidity in the system, and
thereby, inflation by tying
their hands in lending
money
Always stands between 3 %
to 15 %
11. Ω Moral Suasion
Ω Direct Action
Ω Regulation in consumer credit
Qualitative Measures
12. REGULATION IN CONSUMER CREDIT
Qualitative Measures
most of the consumer durables like T.V.,
Refrigerator, Motorcar, etc. are available on
installment basis.
If there is excess demand for certain consumer
durables leading to their high prices, central bank
can reduce consumer credit by (a) increasing down
payment, and (b) reducing the number of
installments of repayment of such credit.
13. DIRECT ACTION
Qualitative Measures
This method is adopted when a
commercial bank does not co-operate
the central bank in achieving its desirable
objectives.
14. MORAL SUASION
Qualitative Measures
To arrest inflationary situation central bank persuades and request the commercial
banks to refrain from giving loans for speculative and non-essential purposes.
On the other hand, to counteract deflation central bank pursuades
the commercial banks to extend credit for different purposes.
17. •9.00% (28 jan 2014)Bank Rate
•4.00% (9 feb 2013)CRR
•23% (11 aug 2012)SLR
•8.00% (28 jan 2012)Repo Rate
•7.00% (28 jan 2012)Reverse Repo Rate
•61.19% (on March 2014)Re/$
Current Rates
19. Use Indian product.
Avoid meeting in five star hotel.
Avoid foreign tour.
Come out idol money balance in
market .
Editor's Notes
Bank Rateminimum rate at which the central bank provides loans to commercial banksAlso called the discount rate. An increase in bank rate results in commercial banks increasing their lending rates. Changes in bank rate alter the cost of creditCurrent Bank rate 6%Cash Reserve Ratio Certain amount of banks deposits in cash with RBI. This % is cash reserve ratioThe current CRR requirement is 5 per cent. Statutory Liquidity RatioBanks to maintain 24 per cent of their demand and time liabilities in government securities and certain approved securities called SLR securitiesBuying/Selling of securities laid to Harshad Mehta scam(1992)Reposecured short-term (usually 15 days) loan by one bank to another against government securities. The borrower sells the securities to the lending bank for cash, with the stipulation that at the end of the borrowing term, it will buy back the securities at a slightly higher price, the difference in price representing the interest.Current Repo Rate is 5%Reverse Reposame repurchase agreement(as Repo) from the buyer's viewpoint seller executing the transaction would describe it as a 'repo', while the buyer would describe it a 'reverse repo‘Current Reverse Repo rate is 3.5%CAR (Capital adequacy Ratio ):ratio of a bank's capital to its riskNational regulators track a bank's CAR to ensure banks can bear reasonable amount of loss and are complying with statutory Capital requirementscapacity of bank meeting the time liabilities and other risk Risk could be credit risk, operational risk, etcBank's capital is the "cushion" for potential losses, which protect the bank's depositors or other lendersBanking regulators in most countries define and monitor CAR to protect depositors, thereby maintaining confidence in the banking systemCAR is similar to leverageOpen Market Operationsimportant instrument of credit controlRBI purchases/sells securities in open market operations. During inflation, RBI sells securities to remove excess money in the market.During Deflation ,RBI purchases securitiesMoney Supply (M3)total volume of money circulating in the economycurrency with the public and demand deposits (current account + savings account) with the public. four concepts of measuring money supply:M1= currency with the public + demand deposits with the public + other deposits with the public. All coins and notes in circulation, and personal current accounts. M2= M1+ personal deposit accounts + government deposits + deposits in currencies other than rupee. M3= fixed deposits + savings deposits with post office + saving banks + M1Most Popular and known as Broad money conceptInflationInflation refers to a persistent rise in pricesToo much money and too few goodsScarcity of goods and many buyers, push the prices up Deflation is Converse of inflation persistent falling of prices. RBI can take two steps to reduce InflationReduce supply of money Increase interest rates