1. MONETARY POLICY
• MONETARY POLICY IS
CONCERNED WITH CHANGES IN
THE SUPPLY OF MONEY.IT
REFERS TO THE STEPS TAKEN
BY THE RBI TO REGULATE THE
COST AND SUPPLY OF MONEY.IT
INFLUENCES THE SUPPLY OF
MONEY,THE COST OF MONEY
ORT HE RATE OF INTEREST AND
THE AVAILABILITY OF MONEY.

2. • It is announced twice a year –
*April – September (a slack season policy)
*October-March (a busy season policy)
• Maintain price stability.
• Norms for the banking ,financial sector
and the institutions which are governed by
it.
• BANK RATE-The minimum rate at which
RBI extends credit to member banks.

3. OBJECTIVES
• To study the changing role and important of
selected monetary instruments in India.
• Growth in employment and income
• To examine the effectiveness of monetary
policy in ensuring price stability in India.
• Stability of the National currency.
• To find out to what extent monetary policy
facilitated economic growth in India.

4. Evaluation
• Unsatisfactory role of capital market.
• Excessive increase in bank credit to the
commercial sector.
• Excessive budgetary deficit and
Government borrowings.
• Imbalance in credit allocation.
• Existence of black money.
• Under developed money market.

5. Monetary policy 2010-2011
• In the wake of the global economic
crisis, the RBI pursued an accommodative
monetary policy beginning mid sep 2008
.This policy instilled financial crises on the
economy started recovering ahead of most
of the other economies.
• The monetary policy response in India
since October 2009 has been calibrated to
India’s specific macroeconomics
conditions.

6. Why monetary policy has been
formed?
• Consolidating recovery
• Higher issuance of securities
• Accentuated inflationary pressures

7. Open market operations
• It refers to the sale and purchase of
Government securities by the RBI.
• If RBI wants to contract money supply
offers to sale Government securities.
• If RBI wants to expand money supply
offers to purchase Government.

8. How does money policy affect
the economy ?
• Money supply in the economy
• Jobs/wages
• Export/Import
• Interest rates and savings

9. Various functions of RBI
• Issue of currency notes-RBI has right to issue
currency notes except 1rupee coin and
note.1rupee coin and note are issued by Central
Government and its distributions are taken by
RBI.
• Banker to the Government-Rbi acts as a banker
agent and advisor to the Government.RBI
receives and makes all payments on behalf of
Government, buys and sells foreign currency
and gives advices for all banking matters to both
Central and State Government.

10. • Controller of credit-RBI through its
qualitative and quantitative techniques
regulate total supply of money .RBI pumps
in money during busy season and
withdraws money during slack season.
• Banker’s bank and lender off-RBI acts as
a banker to all banks. It provides funds to
bank when they fail to get it from other
sources. Through RBI ,banks make
interbank's payment.

11. • Collection and publication of data-The RBI
collects and complies statistical
information on banking and financial
operations of the economy. The RBI
bulletin is a monthly publication .It not only
provides information, but also results of
important studies and investigations
conducted by RBI are given.

12. Recent changes in RBI’s
monetary policy
Since 1991 RBI’s monetary policy has
undergone some major changes1.Multiple indicator approach-It refers to the
strategy aimed at maintaining price stability by
focusing on changes in growth of supply
money.
2.Provision of micro finance-By linking the
banking system with self help groups.RBI
introduced this scheme for rural and poor
people.

13. 3.Selective methods being phased out-With
rapid progress in financial market, the
selective methods of cr.control are slowly
phased out.
4.Reduction in reserve requirements-This has
been done as a part of financial sector
reforms. As a result, more bank funds have
been released for leading. This has led to the
growth of economy

14. 5.Delinking of monetary policy from budget
deficit-In 1994 Government phased out the
use of treasury bills. These bills are used by
Government to borrow from RBI. With
phasing out of bills, RBI would no longer
lend to Government to meet fiscal deficit.

15. Failure of monetary policy
 Huge budgetary deficits
 Coverage of only commercial banks
 Problem of management of banks and
financial institutions
 Lack of transparency
 Black money

16. Open Market Operations
• It includes the sales and purchase by the
central bank of
• Assets
• Foreign exchange
• Gold
• Government Securities
• Company securities

17. Open Market Operations
•
•
•
•
Objective
To Control the amount and changes and
money supply through controlling the
reverse base of banks
To make the policy more effective
To maintain stability in the Govt.
securities/T-bills market
To smoothen the seasonal flow of funds in
the bank credit market.

18. Use of open market Operation
• In the inflationary
situation
• Central bank
decrease the money
supply
• Central bank sale out
the securities to
commercial bank and
control money supply
• In the deprssionary
situation
• Central bank increase
the money supply
• Central bank
purchase the
securities from the
commercial bank.

19. Bank Rate
• The bank rate (BR) is the rate at which the
RBI buys/rediscount bills of exchange
other eligible commercial papers.
• Bank rate means the minimum rate on
which central bank provide financial
accommodation to commercial bank in the
discharge of its function as the lender of
the last resort.

20. Effect of Bank rate
Increase in bank rate
• Increase in bank rate
charge by the central
bank on its advance to
commercial bank.
Commercial bank
increase the rate of
interest on their loan.
Demand for the credits
and loan decrease. Flow
of the money decrease in
the economy Use in
inflationary situation
Decrease in bank rate
• Decrease in bank rate
charge by the central
bank on its advance to
commercial bank.
Commercial bank
decrease the rate of
interest on their loan.
Demand for the credits
and loan increase. Flow
of the money increase in
the economy Use in
depression situation

21. Cash Reserve Ratio:
It is the cash which banks have to
maintain with the RBI, as a percentage of
demand and time liabilities. objective to
ensure the safety and liquidity of bank
deposits. The percentage of this ratio can
be changed legally by the central bank.

22. Statutory Liquidity Ratio:
It refers to the mandatory investment that
banks have to make in govt. securities. SLR
is the reserve that is set aside by the banks
for investment in cash, gold, or
unencumbered approved securities.
.

23. Objectives
• To restrict the expansion of bank credit
• To augment a bank’s investment in govt.
securities and
• To ensure solvency of banks

24. USE OF C.R.R. & S.L.R:
In Inflationary situation Increased the
percentage of cash reserve ratio and
Statutory liquidity ratio It reduces the
supply of money in an economy. In
Depressionary situation Decreased the
percentage of cash reserve ratio and
Statutory liquidity ratio It increases the
supply of money in an economy.

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