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Reserve Bank of India


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This presentation highlights what RBI did to fight recession. General ideas presented in educational level

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Reserve Bank of India

  2. 2. <ul><li>Monetary measures by RBI </li></ul><ul><li>& </li></ul><ul><li>it’s effectiveness … </li></ul>
  3. 3. WHAT IS CENTRAL BANK…? It is the apex institution of monetary system of a country. It is banker to other banks and to government, it issues notes, controls monetary supply and credit, and maintains monetary stability.
  5. 5. What is recession…? <ul><li>An economy which grows over a period of time tends to slow down the growth as a part of the normal economic cycle. An economy typically expands for 6-10 years and tends to go into a recession for about six months to 2 years. </li></ul><ul><li>A recession normally takes place when consumers lose confidence in the growth of the economy and spend less. </li></ul><ul><li>This leads to a decreased demand for goods and services, which in turn leads to a decrease in production, lay-offs and a sharp rise in unemployment. </li></ul><ul><li>Investors spend less as they fear stocks values will fall and thus stock markets fall on negative sentiment. </li></ul>
  6. 7. What is monetary policy…? <ul><li>Monetary Policy can be broadly defined as &quot;the deliberate effort by the Central Bank to influence economic activity by variations in the money supply, in availability of credit or in the interest rates consistent with specific national objectives.&quot; </li></ul>
  7. 8. Objectives of Monetary Policy <ul><li>Price stability, </li></ul><ul><li>Exchange stability, </li></ul><ul><li>Full employment and maximum output </li></ul><ul><li>High rate of growth. </li></ul><ul><li>Monetary authorities use </li></ul><ul><li>open market operations, </li></ul><ul><li>bank rate policy, </li></ul><ul><li>reserve requirement changes and </li></ul><ul><li>selective credit control as instruments to achieve the objectives mentioned above. </li></ul>
  8. 9. TYPES & TOOLS OF MONETARY POLICY <ul><li>Types </li></ul><ul><li>Cheap money policy : Followed in periods of slums & depression. </li></ul><ul><li>Dear money policy: Followed in periods of boom & inflation. </li></ul><ul><li>Tools </li></ul><ul><li>Bank reserves policy </li></ul><ul><li>Liquid adjustment facility </li></ul><ul><li>Open market operations </li></ul><ul><li>Market stabilization scheme </li></ul>
  9. 10. Various Rates Issued by RBI <ul><li>Bank rate </li></ul><ul><li>CRR </li></ul><ul><li>SLR </li></ul><ul><li>Repo </li></ul><ul><li>Reverse Repo </li></ul>
  10. 11. Open Market Operations
  11. 12. First Stimulus Package announced by RBI in Oct-08 <ul><li>Reduced the repo rate by 1% from 7.5% to 6.5% and the reverse repo rate (rate at which banks lend to RBI) by 1% from 6.0% to 5.0%. </li></ul><ul><li>To enhance credit delivery to the labour- intensive micro and small enterprises (MSE) sector, the RBI provided refinance facility to the tune of Rs 70 bn to the Small Industries Development Bank of India (SIDBI) that is the prime financer to such enterprises. </li></ul><ul><li>RBI had allowed loans granted by banks to housing finance companies (HFCs) for lending towards houses costing less than Rs 2 m to be classified under priority sector lending. </li></ul>
  12. 13. <ul><li>Proposals for easing credit to exporters and allowing repayment of foreign debt by Indian corporates. </li></ul><ul><li>Ending a foreign exchange swap facility for banks </li></ul><ul><li>A cut in export credit refinance facility to levels before the crisis at 15 percent from the current 50 percent with immediate effect. </li></ul>
  13. 14. Second Financial Stimulus Package- 2, Jan 2009 <ul><li>Brought down the repo rate from 6.5 per cent to 5.5 per cent with immediate effect. </li></ul><ul><li>Brought down reverse repo rate under the LAF (Liquidity Adjustment Facility) window by one per cent to 4% from 5%. </li></ul><ul><li>Interest rate corridor remains same as 1.5% </li></ul><ul><li>The bank rate continued to be six per cent. </li></ul><ul><li>Slashed the cash reserve ratio or CRR by 0.5 per cent to 5% </li></ul><ul><li>CRR was supposed to release additional liquidity to the extent of Rs 20,000 crores into the financial system. </li></ul>
  14. 15. <ul><li>Primary liquidity has been injected into the financial system to an extent of Rs 3,00,000 crores. </li></ul><ul><li>Liberalizing the policy on External Commercial Borrowing (ECB). </li></ul><ul><li>Access to funds for the housing sector . </li></ul>
  15. 16. Recent changes For 2009-10 <ul><li>Reduction in the Repo (Repurchase) Rate by 25 basis to 4.75 per cent. </li></ul><ul><li>Reduction in the Reverse Repo (Repurchase) Rate by 25 basis points to 3.25 per cent </li></ul><ul><li>No change in the Cash Reserve Ratio, which is 5 per cent </li></ul>
  16. 17. Key rates Jul 2008 Oct 2008 Jan 2009 CRR 9 5.5 5 Repo Rate 9 6.5 5.5 Reverse Repo 6 5 4 Bank rate 6 6 6
  17. 19. <ul><li>THANK YOU </li></ul>