includes objectives of monetary policy and its importance and discussed different monetary instruments like bank rate, cash reserve ratio, statutary liquidity ratio, rationing of credit , moral suasion, repo rate, marginal requirement .Monetary policy is the macroeconomic policy laid down by the central bank. It involves management of money supply and interest rate and is the demand side economic policy used by the government of a country to achieve macroeconomic objectives like inflation, consumption, growth and liquidity. OBJECTIVES OF MONETARY POLICY Full Employment • Price Stability • Economic Growth • Balance of Payments • Exchange Rate Stability • Neutrality of Money • Equal Income Distribution

2. WHAT IS MONETARY POLICY
• Monetary policy is the macroeconomic policy
laid down by the central bank. It involves
management of money supply and interest rate
and is the demand side economic policy used
by the government of a country to achieve
macroeconomic objectives like inflation,
consumption, growth and liquidity.
• Monetary Policy refers to the credit control
measures adopted by the central bank of a
country.

3. OBJECTIVES OF MONETARY
POLICY
• Full Employment
• Price Stability
• Economic Growth
• Balance of Payments
• Exchange Rate Stability
• Neutrality of Money
• Equal Income Distribution

4. TYPES OF MONETARY POLICY
Monetary policy design changes as per the goals set
for the monetary policy and the emerging economic
scenario.
The monetary policy is characterised as
expansionary policy and contractionary policy.

5. EXPANSIONARY MONETARY
POLICY
Expansionary or easy monetary policy aims
at encouraging spending on goods and
services by expanding the supply of credit
and money by lowering the policy rates
(bank rate or repo rate), lowering the
reserve requirements and purchasing the
government securities from the market.

6. CONTRACTIONARY MONETARY
POLICY
• Contractionary or tight monetary policy
aims at preventing inflation by contracting
the money supply.
• Contraction in money supply is achieved by
increasing the policy rates, increasing the
reserve requirements and selling the
government securities from the market.

7. INSTRUMENTS OF
MONETARY POLICY
QUANTITATIVE QUALITATIVE
BANK RATE
OPEN MARKET
OPERATION
CASH RESERVE
RATIO
SLR
REPO RATE
&REVERSE REPO
RATE
RATIONING OF
CREDIT
MARGINAL
REQUIREMENT
MORAL
SUASION
REGULATION OF
CONSUMER
CREDIT
DIRECT ACTION

8. BANK RATE
• Bank Rate is also known as discount rate.
• It is the rate at which RBI lends to the
commercial banks or rediscounts their bills.
• If bank rate is increased ,then commercial
banks also charge higher rate of interest on
loans given by banks to public because now
commercial banks get funds from RBI at higher
rate of interest.

9. OPEN MARKET OPERATIONS
• It means that the bank controls the flow of
credit through the sale and purchase of
securities in the open market.
• When securities are purchased by central
bank, then RBI makes payment to
commercial banks and public. So, the public
and commercial banks now have more
money with them

10. CASH RESERVE RATIO
• Cash Reserve Ratio is a certain percentage of
bank deposits which banks are required to keep
with RBI in the form of reserves or balances .
• Higher the CRR with the RBI lower will be the
liquidity in the system and vice-versa.
• RBI is empowered to vary CRR between 15
percent and 3 percent.

11. STATUTORY LIQUIDITY RATIO
• It means a certain percentage of deposits is to be kept
by banks in form of liquid assets.
• This is kept by bank itself the liquid assets here
include government securities, treasury bills and other
securities notified by RBI.
• If SLR is more then banks have to keep more part of
deposits in specified securities and banks will have less
surplus funds for granting loans. It will contract
credit.

12. • SLR is fixed by RBI and usually it has been
ranging between 25% to 40%. By an
amendment of the Banking regulation
Act(1949) in January 2007, the floor rate of
25% for SLR was removed.
• The current SLR is 19.5 %

13. REPO RATE AND REVERSE REPO
RATE
• Repo rate is the rate at which RBI lends to
commercial banks generally against government
securities. Reverse Repo rate is the rate at which
RBI borrows money from the commercial banks.
• Reduction in Repo rate helps the commercial
banks to get money at a cheaper rate and increase
in Repo rate discourages the commercial banks to
get money as the rate increases and becomes
expensive.

14. • As the rates are high the availability of credit and
demand decreases resulting to decrease in
inflation.
• This increase in Repo Rate and Reverse Repo Rate
is a symbol of tightening of the policy.
• The current repo rate is 6.50 % and reserve repo
rate is 6.25 %.

15. CURRENT POLICY RATES
Policy Repo Rate : 6.50%
Reverse Repo Rate : 6.25%
Bank Rate : 6.75%
CRR : 4%
SLR : 19.5%

16. QUALITATIVE
INSTRUMENTS

17. RATIONING OF CREDIT
• Credit rationing is a method of controlling
and regulating the purpose for which credit
is granted by commercial bank.
• It aims to limit the total amount of loans
and advances granted by commercial banks.

18. MARGINAL REQUIREMENTS
• Margin is the difference b/w the
market value of a security and
its maximum loan value.
• Marginal requirement of loan
can be increased or decreased to
control the flow of chart.

19. MORAL SUASION
Moral Suasion means persuasion and request.
To arrest inflationary situation central bank
persuades and request the commercial banks
to refrain from giving loans for speculative
and non-essential purposes.

20. REGULATION OF CONSUMER CREDIT
If there is excess demand for certain
consumer durable leading to their high
prices, central bank can reduce consumer
credit by increasing down payment, and
reducing the number of instalments of
repayment of such credit.

21. DIRECT ACTION
Under the banking Regulation Act, the
Central Bank has the authority to take strict
action against any of the commercial bank
that refuses to obey the directions given by
Reserve Bank of India.

22. SIGNIFICANCE OF
MONETARY
POLICY

23. • Control Inflation or Deflation
• Availability of the Supply of money
and Credit
• Integrated Interest Rate Structure
• Effective Central Banking
• Long-Term Loans for Industrial
Development
• Creation of Financial Institution

24. CONTROL INFLATION & DEFLATION
Monetary policy is the policy used by the
government of a country to control inflation
or deflation in an economy, and this policies
been implemented by the central bank
through the ministry of finance.

25. AVAILABILITY OF THE SUPPLY OF MONEY
& CREDIT
Monetary policy is concerned with the
charges in the supply of the money and credit.
It refers to the policy measures under taken
by the government or central bank to
influence the availability, cost and use of
money and credit with the help of monetary
techniques to achieve specific objectives.

26. INTEGRATED INTEREST RATE STRUCTURE
In an underdeveloped economy, there is
absence of an integrated interest rate
structure. There is wide disparity of interest
rates prevailing in the different sectors of the
economy and these rates do not respond to the
changes in the bank rate, thus making the
monetary policy ineffective

27. EFFECTIVE CENTRAL BANKING
To meet the developmental needs the central
bank of an underdeveloped country must
function effectively to control and regulate the
volume of credit through various monetary
instruments, like bank rate, open market
operations, cash-reserve ratio etc.

28. LONG TERMS LOANS FOR INDUSTRIAL
DEVELOPMENT
Monetary policy can promote industrial
development in the underdevelopment
countries by promoting facilities of medium-
term and long-term loan to the manufacturing
units.

29. CREATION OF FINANCIAL
INSTITUTIONS
The Monetary policy in a developing
economy must aim to improve its currency
and credit system. More banks and financial
institutions should be set up, particularly in
both areas which lack these facilities.