Monetary policy of rbi


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  • Bank Rateminimum rate at which the central bank provides loans to commercial banksAlso called the discount rate. An increase in bank rate results in commercial banks increasing their lending rates. Changes in bank rate alter the cost of creditCurrent Bank rate 6%Cash Reserve Ratio Certain amount of banks deposits in cash with RBI. This % is cash reserve ratioThe current CRR requirement is 5 per cent. Statutory Liquidity RatioBanks to maintain 24 per cent of their demand and time liabilities in government securities and certain approved securities called SLR securitiesBuying/Selling of securities laid to Harshad Mehta scam(1992)Reposecured short-term (usually 15 days) loan by one bank to another against government securities. The borrower sells the securities to the lending bank for cash, with the stipulation that at the end of the borrowing term, it will buy back the securities at a slightly higher price, the difference in price representing the interest.Current Repo Rate is 5%Reverse Reposame repurchase agreement(as Repo) from the buyer's viewpoint seller executing the transaction would describe it as a 'repo', while the buyer would describe it a 'reverse repo‘Current Reverse Repo rate is 3.5%CAR (Capital adequacy Ratio ):ratio of a bank's capital to its riskNational regulators track a bank's CAR to ensure banks can bear reasonable amount of loss and are complying with statutory Capital requirementscapacity of bank meeting the time liabilities and other risk Risk could be credit risk, operational risk, etcBank's capital is the "cushion" for potential losses, which protect the bank's depositors or other lendersBanking regulators in most countries define and monitor CAR to protect depositors, thereby maintaining confidence in the banking systemCAR is similar to leverageOpen Market Operationsimportant instrument of credit controlRBI purchases/sells securities in open market operations. During inflation, RBI sells securities to remove excess money in the market.During Deflation ,RBI purchases securitiesMoney Supply (M3)total volume of money circulating in the economycurrency with the public and demand deposits (current account + savings account) with the public. four concepts of measuring money supply:M1= currency with the public + demand deposits with the public + other deposits with the public. All coins and notes in circulation, and personal current accounts. M2= M1+ personal deposit accounts + government deposits + deposits in currencies other than rupee. M3= fixed deposits + savings deposits with post office + saving banks + M1Most Popular and known as Broad money conceptInflationInflation refers to a persistent rise in pricesToo much money and too few goodsScarcity of goods and many buyers, push the prices up Deflation is Converse of inflation persistent falling of prices. RBI can take two steps to reduce InflationReduce supply of money Increase interest rates
  • Monetary policy of rbi

    1. 1. Monetary Policy
    2. 2. CD Deshmukh The First Indian Governor of Reserve Bank of India (RBI) Dr. D. Subbarao Present Governer of Present Governer of
    3. 3. Monetary policy- Meaning The part of the economic policy which regulates the level of money in the economy in order to achieve certain objectives. In INDIA,RBI controls the monetary policy. It is announced twice a year, through which RBI,regulate the price stability for the economy. 1.slack season policy April-September 2.Busy season policy October-March
    4. 4. Importance of Monetary Policy Gross National Product (GNP) = C + I + G + X Where: C = Private Consumption expenditure I = Private Investment Expenditure G = Government Expenditure X = Net Exports C, I, X can be influenced by the monetary policy which can also influence the private consumption and investment spending and exports and imports.
    5. 5. ∫Economic Growth ∫Full Employment ∫Flow of credit in all sectors of economy ∫Price Stability OBJECTIVES
    6. 6. Exchange rate stability Equilibrium in balance of payments Greater equality in the distribution of income and wealth
    7. 7.  Bank rate  Open market operations  Cash reserve ratio (CRR)  Statutory liquidity ratio (SLR) Quantitative measures
    8. 8. Ω Rationing of credit Ω Moral Suasion Ω Direct Action Ω Regulation in consumer credit Ω Changes in margin requirements Qualitative Measures
    9. 9. IF : Bank Rate Bank Rate
    10. 10. CRR/SLR CRR/SLR
    11. 11. LIMITATION OF MONETARY POLICY ‡ Non-monetized sector ‡ Non-banking financial institution ‡ Unorganised financial markets
    12. 12. ¤ Higher liquidity ¤ Non-appearance of money ¤ Time tag ¤ Lack of coordination between monetary and fiscal policy
    13. 13. Monetary Policy Of 2011-2012
    14. 14. • 2.9%Inflation • 9.50%Bank Rate • 4.75%CRR • 24%SLR • 8.50%Repo Rate • 7.50%Reverse Repo Rate • 11.5 to 12%PLR • 51.27%Re/$ Current Rates
    15. 15. Conclusion As articulated in the June 16th policy statement, RBI will continue to maintain liquidity conditions such that neither surplus liquidity dilutes the monetary policy stance nor large deficit chokes off fund flows to productive sectors of the economy. The market at present has discounted the rise of 25 bps in interest rates but global concerns still continue to weigh on the market.
    16. 16. x?Id=6376 x?Id=5 602 what-is-cash-reserve-ratio-and-how-will-the-crr- hike-impact-you/ policy.asp Bibliography
    17. 17. Amrita Hemrajani (17) Pearlene Jasavala (24) Niharika Kulkarni (30) Khyati Nandu (38) Sanaya Patel (40) Krishma Sandesra (42) Vatsal Shah (50)