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Monitory policy
1.
2.
3. It is a policy of central bank to control
the supply of money often targeting
rate of interest with the aim of
achieving macro economics stability.
4. ๏ผ Tool used by the
national govt. to
influence the economic
outcomes
๏ผ Aims to regulate the
volume of the money
supply with in economy
๏ผ Rests as relationship
between interest rate
and money supply
9. Price stability contributes to
achieving high levels of
economic activity and
employment by
Improving the transparency of
the price mechanism
Reducing the inflation risk
premier in interest rates
10. ๏ผ Has a positive impact
on economy
๏ผ Reduces distortions of
inflation or deflation
11. ๏Central bank plays a
critical role in every
transaction, business
and daily activities,
whether it is
Economic activity or
Individual activity
(saving schemes or
return matters)
12. ๏Central bank gives money to commercial banks in
the time of crises to avoid panic life situations in
the markets.
๏ Acts as the Government Bank
๏ Implements Monetary Policy
๏ Acts as a Banker to Commercial Banks
20. 1.Quantitative Instruments
1. Bank Rate Policy (BRP)
Rate at which central bank gives loans to commercial banks
Central bank charges 10% as bank rate
To control inflation central bank increases the rate of interest
2. Open Market Operation
Central bank sells or purchases government securities
To remove inflation they sell the government securities
Commercial banks will purchase these securities to earn
interest
21. Commercial bank has to keep certain proportion of its assets in the
form of reserves
Cash Reserve Ratio (CRR)
Statutory Liquidity Ratio (SLR)
Variation Reserve Ratios (i.e. CRR+SLR)
Central bank Increases the reserve requirements
22. 1.
Moral Suasion
Moral request by central bank to commercial banks
Loans should not be given for unproductive fields
Loans should not be given for speculative purposes and hoarding
2. Consumers Credit Regulation
Applied during inflation
If the central bank wants to control the supply of money
central bank issue directions to commercial banks
Loans should not be advanced for consumption
purposes
23. Concerned with the policy of central bank against commercial banks
Central bank will not advance loan to commercial banks, those whose
borrowings are in excess
4.Publicity
Central bank keeps an eye over the activities of the commercial banks
If the commercial banks are found advancing loans
which create inflation
The central bank can black list such banks
24. Organized capital market
Bank rate and other interest
rates
Willingness of banks
Availability of large cash
reserves
25. Suggestions
The commercial banks should maintain only a minimum cash
reserve and depend upon the central bank for obtaining reserve.
The central bank requires that the quantity of money should be
increased or decreased to influence the price level.
The bank rate policy should effective only when the lending
rates of commercial bank are affected by changes in bank rate.
