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Monetary Developments


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Monetary Developments

Monetary Developments

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  • 1. MONETARY DEVELOPMENTSEmerging trends in 2008-09
    Presented by:
  • 2. Terms
    CRR Rate
    Cash reserve Ratio (CRR) is the amount of funds that the banks have to keep with RBI. If RBI decides to increase the percent of this, the available amount with the banks comes down. RBI is using this method (increase of CRR rate), to drain out the excessive money from the banks.
  • 3. Repo Rate
    Repo rate is the interest rate at which the reserve bank of India lends money to other banks.
    Reverse Repo Rate
    Reverse repo rate is return banks earn on excess funds parked with the central bank against Government securities.
  • 4. Terms
    Statutory liquidity ratio
    The amount of liquid assets, such as cash, precious metals or other short-term securities, that a financial institution must maintain in its reserves. The statutory liquidity ratio is a term most commonly used in India.
    To restrict the expansion of bank credit.
    To augment the investment of the banks in Government securities.
    To ensure solvency of banks. A reduction of SLR rates looks eminent to support the credit growth in India
  • 5. Terms
    Measure of the extent to which a person or firm has (or has the ability to quickly put hands on) cash to meet immediate and short-term obligations.
    Reserve money (M0)
    The total amount of a currency that is either circulated in the hands of the public or in the commercial bank deposits held in the central bank's reserves. This measure of the money supply typically only includes the most liquid currencies.
  • 6. Narrow money (M1)
    One measure of the money supply that includes all coins, currency held by the public, traveler's checks, checking account balances, NOW accounts, automatic transfer service accounts, and balances in credit unions. also called M1.
  • 7. Terms
    Broad money (M2)
    One measure of the money supply that includes M1, plus savings and small time deposits, overnight repos at commercial banks, and non-institutional money market accounts. This is a key economic indicator used to forecast inflation, since it is not as narrow as M1 and still relatively easy to track. All the components of M2 are very liquid, and the non-cash components can be converted into cash very easily.
  • 8. Two types of Investment
    Foreign Institutional Investment (FII)
    An investor or investment fund that is from or registered in a country outside of the one in which it is currently investing. Institutional investors include hedge funds, insurance companies, pension funds and mutual funds.
    Foreign direct investment (FDI)
    An investment abroad, usually where the company being invested in is controlled by the foreign corporation
  • 9. The task of monetary management by the RBI in India has centered around managing a judicious balance between price stability and sustaining the growth momentum.
    The global financial turmoil reinforced the importance of preserving financial stability through prudent regulatory surveillance and effective supervision.
    Emerging trends in 2008-09
  • 10. The current policy challenge, accordingly, was perceived as the need to strike an optimal balance between preserving financial stability, maintaining price stability, anchoring inflationary expectations, and at the same time sustaining the growth momentum.
  • 11. Monetary Measures
    Repo Rate, Reverse Repo Rate, CRR Rate
    Repo rate: 4.75%
    Reverse Repo : 3.25%
    CRR: 5%
    Bank Rate kept unchanged at 6%.
    FY09 GDP target revised down to 7% with downward bias.
    CONTEXT: Previous FY09 GDP target was 7.5-8.0%.
    FY09 Mar-end inflation target below 3%.
    CONTEXT: Previous FY09 Mar-end inflation target was below 7%.
  • 12. -Give comfortable liquidity to meet loan growth consistent with GDP projection.
    Hard to predict every development on uncertain global outlook.
    To maintain vigil, monitor domestic, global events.
    To take swift action to minimize global crisis impact.
    To take swift action to restore econ to potential growth path.
  • 13. Commodity, oil price fall reduced local inflation pressures.
    Inflation declined on global commodity price fall.
    RBI to take conventional, unconventional steps to keep comfortable liquidity.
    CRR cuts since Sept has released 1.6 trln rupees.
    RBI steps since Sept boosted liquidity worth 3.88 trln rupee.
    SLR cut freed 400 bln rupee of liquid funds for loan growth.
  • 14. Thank you