Monetary Policy in India

1. Aviral Singhal
Departmet of Electrical Engineering
Indian Insitute of Technology Roorkee
MONETARY
POLICY

2. Monetary Policy
• Monetary policy
refers to the use of
instruments under
the control of the
central bank(RBI) to
regulate the
availability, cost and
use of money and
credit.

3. Objectives
• The Primary goal of Monetary Policy is price
stability, while keeping in mind the objective
of growth.
• Controlled expansion of bank credit
• Promotion of fixed investment
• Restrictions of inventories and stocks
• Promoting efficiency
• Reducing rigidity/Increasing liquidity

4. Instruments of Monetary Policy
• Repo Rate: The interest rate at which the RBI provides
short-term loans to banks against collateral.[ injects
liquidity]
• Reverse Repo Rate: [absorbs liquidity]
• Marginal Standing Facility (MSF): A window for
scheduled bank s to borrow from RBI in an emergency
situation when inter-bank liquidity dries up
• Bank Rate: It is the rate at which the RBI lends money
to commercial banks for a long period without
security.
• Cash Reserve Ratio (CRR): The share of net demand
and time liabilities that banks must maintain as cash
balance with the Reserve Bank. (risk-free & liquidity )

5.  Statutory Liquidity Ratio (SLR): the percentage of total
net demand and time liabilities(NDTL) that banks need
to maintain in form of gold, or govt. approved
securities before providing credit to the customer.
 Open Market Operations (OMO): purchase/sale of
government securities by RBI from/to market.[ adjust
liquidity on durable basics]
 Refinance facilities: Sector-specific refinance facilities
aim at achieving sector specific objectives through
provision of liquidity at a cost linked to the policy rate.
 Market Stabilization Scheme (MSS):Surplus liquidity
arising from large capital inflows is absorbed through
sale of short-dated government securities. The
mobilized cash is held in a separate government
account with the Reserve Bank

6. Comparison
• RBI controls the
supply of money
• Growth, inflation,
exchange rates
• RBI
• Interest rates, reverse
requirements, OMP
etc.
• Govt. expenditure
and revenue
collection
• Price stability, full
employment
• Government
• Taxes, amount of
govt. spending
Monetary Policy Fiscal Policy