Role of Reserve Bank of India (RBI) Benjamen Arwade PF1102 SIMSREE, Mumbai
Main functions of RBI Main functions Manager of DevelopmentalBank of Issue Monetary authority Issuer of currency exchange control role
Related functions Cash ReserveBank Rate SLR Ratio (CRR
• Bank of Issue : The Reserve Bank of India Act, the Bank has the sole right to issue bank notes of all denominations. • Monetary authority : It formulates, implements and monitors the monetary policy as well as it has to ensure an adequate flow of credit to productive sectors
• Manager of exchange control : To facilitate external trade and payment and promote orderly development and maintenance of foreign exchange market in India.• Issuer of currency : The basic objectives of RBI are to issue bank notes, to maintain the currency and credit system of the country to utilize it in its best advantage, and to maintain the reserves• Developmental role : The central bank had to perform a wide range of promotional functions to support national objectives and industries
What is Monetary Policy?• Monetary policy is the process by which the monetary authority of a country controls the supply of money• Targeting the Rate of interest• The purpose of which is economic growth & reduce the unemployment.
Money supply• The money stock, is the total amount of money available in an economy at a specific time• It is measures usually include currency in circulation and demand deposits
Higher Economic Growth• Economic growth is the increase in the amount of the goods and services produced by an economy over time• The concern about economic growth focuses on the desire to improve a countrys standard of living
Inflation• Inflation is a rise in the general level of prices of goods and services in an economy over a period of time.
Price Stability• Inflation increases price deflation decreases• Inflation: Fixed income group face economic problem. Problem in every sector of economy• Deflation: It is a decrease in the general price of level of goods and services
• Inflation targeting : Under this policy approach the target is to keep inflation, under a particular definition such as Consumer Price Index, within a desired range.• Price level targeting : Price level targeting is similar to inflation targeting except that CPI growth in one year over or under the long term price level target is offset in subsequent years such that a targeted price-level is reached over time
• Monetary aggregates : It is a tendency in economic thought that emphasizes the role of governments in controlling the amount of money in circulation.• Fixed exchange rate : Under a system of fiat fixed rates, the local government or monetary authority declares a fixed exchange rate but does not actively buy or sell currency to maintain the rate. Instead, the rate is enforced by non-convertibility measures.
• Gold standard : The gold standard is a system under which the price of the national currency is measured in units of gold bars and is kept constant by the governments promise to buy or sell gold at a fixed price in terms of the base currency.
• Monetary base : Monetary policy can be implemented by changing the size of the monetary base. Central bank use open market operations to change the monetary base.• Reserve requirements : Banks only maintain a small portion of their assets as cash available for immediate withdrawal; the rest is invested in illiquid assets like mortgages and loans
• Discount window lending : Discount window lending is where the commercial banks, and other depository institutions, are able to borrow reserves from the Central Bank at a discount rate.• Interest rates : The contraction of the monetary supply can be achieved indirectly by increasing the nominal interest rates.