1. MONETARY POLICY
MADE BY: APURVA DEEPAK SINGH
KHANGROT DEEPALI GARG
APURVA MEHTA
ARUN GAUR
ASTHA DUBEY
ASHISH
AGARWAL
ASHUTOSH
UDAWAT
ASIF ALI
CHANCHAL
UDERANI
2. DEFINITION
According to Prof. Harry Johnson,
"A policy employing the central banks
control of the supply of money as an
instrument for achieving the objectives of
general economic policy is a monetary
policy."
3. OBJECTIVES
Rapid Economic Growth
Price Stability
Exchange Rate Stability
Balance of Payments (BOP) Equilibrium
Full Employment
Equal Income
4. EVOLUTION OF MONETARY POLICY IN INDIA
After the crises in 1991, stabilization went
simultaneously with structural reforms.
Change in context fundamentally altered
the manner in which monetary policy
began to be formulated
Macroeconomics and price stability
received greater emphasis
Continuous rebalancing of priority
between growth and price stability
5. HISTORY OF MONETARY POLICY
With the creation of the bank of England in
1694,which acquired the responsibility to
print the notes and back them with gold after
that monetary policy as independent
established.
The goal of monetary policy was to maintain
the value of the coin, print notes which
would trade at par to spicie. and prevent
coins from leaving circulation.During the
year 1870-1920, the industrialized nations
set up central banking system.
6. INSTRUMENTS OF MONETARY POLICY
General (Quantitative) Methods
Selective (Qualitative) Methods
7. QUANTITATIVE METHODS
Bank Rate
This is the rate at which central bank (RBI)
lends money to other banks or financial
institutions. If the bank rate goes up,
long-term interest rates also tend to move
up, and vice-versa. Bank Rate is 6% and
also known as discount rate.
8. Open market operations
It is purchase and sale by central bank of a
variety of assets,such as foreign
exchange,gold and government securities
9. Cash reserve ratio
Every commercial bank has to keep,a
certain percentage of their deposits with
the central bank called as cash reserve
ratio. At present it is 6%
10. Statutory Liquidity Ratio
This term is used by bankers and indicates
the minimum percentage of deposits that
the bank has to maintain in form of gold,
cash or other approved securities. It
regulates the credit growth in India. At
present SLR is 24%.
11. QUANTITATIVE TOOLS OF MONITORY POLICY
The lending and investments+ Credit
Rationing :
certain conditions are laid by the Central
Bank to
see proper regulation of consumer credit.
Direct Action: It has its direction and
restrictive measures, which all the concern
banks should follow regarding .
12. QUANTITATIVE
Quantitdf ative + Credit Rationing : certain
conditions are laid by the Central Bank to
see proper regulation of consumer credit.
Direct Action: It has its direction and
restrictive measures, which all the concern banks
should follow regarding the lending and
investment
13. Margin Requirement : This is done
keeping in view the difference between
the value of security and the amount of
ad.
Moral Persuasion: It helps the Central
Bank to secure the willingness and co-
operation, but then that depends on the
amount of respect and authority the
Central Bank enjoys among the member
banks to cover any loss.
14. MONEY SUPPLY
Meaning of money supply
In economics, the money supply or money stock, is
the total amount of money available in an economy at
a specific time.
Money
Money refers to currency in circulation and demand
deposits.
Money supply and monetory policy is also a mean of
control of inflation
There are four major players of money supply
Central bank
bank
depositors
borrowers from bank
15. DEPLOYMENTS OF MONEY SUPPLY
Net bank credit to government (A):
. Bank credit to commercial sector (B
. Government’s currency liabilities to the public
(D):
Net foreign exchange assets of banking sector (C
. Banking sectors’ net non-monetary liabilities
other than time deposits (E):
16. MEASURES OF MONEY STOCK
The RBI employs four measures of money stock,
namely M1, M2, M3 and M4.
M1 : This is the money supply i.e the currency
with the public and demand deposits with the
bank and other deposits with RBI. In developed
countries demand deposits form a major part of
the money supply. Demand deposits are primarily
savings and current account deposits where your
are able to "demand" your money at any time,
unlike a term deposit, which cannot be accessed
for a predetermined period.
17. M2: M1+Post Office Savings
M3 or aggregate money supply : M2 Time
Deposits with the banks.
M4: M3+total Post office deposits
18. MAJOR TYPES OF CURRENCY
There are four major types of currency.
1. Reserve currency
A foreign currency held by central banks and
other major financial institutions as a means to
pay off international debt obligations, or to
influence their domestic exchange rate.
2. Commodity block currency
A currency that belongs to a country whose
economy is strongly correlated with the price
fluctuations of a certain commodity.
19. 3. Weak currency
A currency with value that has depreciated
significantly over time against other currencies.
4. High risk currencies
A form of risk that arises from the change in
price of one currency against another.
Whenever investors or companies have assets
or business operations across national borders,
they face currency risk if their positions are not
hedged.
20. FISCAL POLICY
Fiscal Policy is the main part of Economic
policy and Fiscal Policy's first word Fiscal
is taken from French word Fisc it means
treasure of Govt. So we can define fiscal
policy as the revenue and expenditure policy
of Govt. of India .It is prime duty of
Government to make fiscal policy . By
making this policy , Govt. collects money
from his different resources and utilize it in
different expenditure . Thus fiscal policy is
related to development policy . All welfare
projects are completed under this policy
21. TECHNIQUE OF FISCAL POLICY
Taxation Policy
Public Expenditure Policy
Public Debt Policy
Deficit Financing Policy
22. OBJECTIVES OF FISCAL POLICY
Development of Country
Employment
Inequality
Fixation of Govt. Responsibility
23. THE UNION BUDGET
An estimate of all anticipated revenue and expenditure of the
Union Government.
The Union Budget is laid before Parliament on the last
working day of february every year.
All receipts and expenses of the Union Govt. are kept under
–
The Consolidated Fund – All revenue raised by Govt., loans
raised by it and also receipts from recoveries of loans
granted from the Consolidated Fund.
All expenditure is incurred from the Consolidated Fund.
No amount can be withdrawn from the Consolidated Fund
without authorisation from Parliament..
Public Account – It includes all other receipts &
disbursements such as deposits, service funds &
remittance, which is not subject to vote of parliament
24. The presentation , followed by general
discussion on the budget in both houses
of Parliament.
The estimates from the Consolidated
Fund of India , are placed before the Lok Sabha
in the form of Demand for Grants.
All withdrawls are then authorised by
an Appropriation Act.
The tax proposals are embodied in another bill
which is passed as the Finance Act of the year.
These are audited by the Comptroller and
Auditor General.
25. THE STRUCTURE OF THE BUDGET
Budget is divided into revenue (receipts)
& expenditure (disbursements). Horizontally it
is divided into revenue accounts & capital accounts.
Thus receipts are divided as revenue & capital
receipts. Disbursements are divided as revenue &
Capital expenditure
The revenue expenditure includes all current
expenditure of Govt. on administration , capital
expenditure includes all the capital transaction of the
Govt.
The revenue receipts include revenue from taxes, capital
receipts include market loans, external aid, income from
repayments & other receipts.
26. STATE BUDGET
Estimates of receipts and expenditure are
presented by State Govt. to their
legislature before the beginning of the
financial year and legislative sanction for
expenditure is secured through similar
procedure.
27. CURRENT SCENARIO OF MONETARY POLICY
The following features of monetry policy were revised as on
Oct. 25, 2011:-
Repo Rate: Increase in the repo rate by 25 basis points from
8.25 per cent to 8.50 per cent.
Reverse Repo Rate: The reverse repo rate under the
LAF(liquidity adjustment facility), determined with a spread
of 100 basis point below the repo rate, automatically adjusts
to 7.50 per cent .
Marginal Standing Facility (MSF) Rate: MSF rate, determined
with a spread of 100 basis points above the repo rate, stands
calibrated at 9.50 per cent.
Bank Rate: The Bank Rate has been retained at 6.0 per cent.
Cash Reserve Ratio: The cash reserve ratio (CRR) of
scheduled banks has been retained at 6.0 per cent of their
NDTL.
28. ADVANTAGES AND LIMITATIONS OF MONETARY
POLICY
ADVANTAGES
Price stability
External economic stability
Economic development
LIMITATIONS
Limitations during deflation
Lags in monetary policy
Changes in the velocity of money
Attitude of banks
