A brief introduction of the Monetary Policy of India.

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Monetary Policy
1. What is Monetary Policy?
The monetary policy is the policy of the government or central government
where controls the quantity of money, cost of money, and use of money in the
country.
2. What the role of this policy in any developing country?
There are two primary roles of this policy in any developing country, first is to
promote the economic development and other is stability the prices.
3. Which was the first committee on Monetary policy in India?
On December, 1982 under the Chairmanship of Prof. Shree SUKHAMOY
CHAKRABORTHY. He was an economist and professor at Delhi University. He
believed that price stability was essential for promoting growth and achieving
other social objectives.
4. What is the tool of Monetary Policy in India?
I. Quantitative Tools : impact on economy
II. Qualitative Tools : related to specific sector
Margin
Margin against
collateral,
borrowing less if
margin is
increased, and
vice versa.
Regulatory
pressure
RBI, convinces the
bank to keep
money in
government
securities.
Selective Credit
Control
RBI can give
instructions to the
bank regarding
not provide the
loan to specific
industries.
CRR= 3%
SLR= 18%

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III. Other methods:
a. Bank Rate:
- Bank Rate is an Interest Rate
- RBI can decrease or increase the bank rate, to control the money supply
- Increase in Bank Rate -----increase in lending rate of banks
- Decrease in Bank Rate ---- decrease in lending rate of bank.
b. REPO Rate :
* Repurchase agreement :
- Collectral – Government Securities (Sale of securities)
- Later buy Condition
- Pre- Defined time
- Control the inflation and money supply
- Dircetly connected with big amount loan, (Like housing loan)
c. Reverse Repo Rate:
- Reversal of Repo Rate
- RBI borrow money from banks
- To manage cash flow
- Always lower than repo rate (Repo Rate – 1)
- Transfer money from one account to another
d. Marginal Standing Facility Rate (MSF) :
- Schedule commercial banks can borrow funds from RBI.
- Overnight necessity.
- This will be approved against the govermnet securities of SLR quota (Excess) up
to a certain precenatge of their net demand and time liabilities.
- Banks having current Accounts and Subsidiary General Ledge(SGL) with RBI.
- RBI have descreationary power.
Banks
Lend long-
term fund
RBI
RBI on
repurchase
agreement*
borrow-
Shortterm
fund
Bank
Bank Rate
4.65%
Repo Rate –
4.40%
Reverse Repo
Rate = 3.75%
MSF= 4.65%

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