this is regarding important monetary policies and how it is intruments used

1. MONETARY POLICY OF INDIA:
AN INTRODUCTION AND BASICS :submmited by
Rajni Chaudhary, Mphil student at H.P.U.

2. DEFINITION OF MONETARY POLICY:
– Monetary is the policy which prepared and controlled by the central bank of any
country and in India RBI( RESERVE BANK OF INDIA) taking action for managing
economic growth and inflation.
– One of the most important function of RESERVE BANK OF INDIA, is to formulate
and administer a monetary policy . Such a policy refers to the use of instruments
of credit control by the RESERVE BANK OF INDIA so as to regulate the amount of
credit creation by the banks.
– So main three important function of monetary policy:
 the supply of money
 Cost of money or rate of interest
 The availability of money.

3. RESERVE BANK OF INDIA:
1ST APRIL 1935

4. OBJECTIVE OF MONETARY
POLICY:
o TO ACCELERATE THE PROCESS OF ECONOMIC GROWTH: Reserve
bank has made the allocation of funds to the various sectors
according to the priorities laid down in the plans and
requirements of day to development.
o CONTROLLED EXPANSION: The second objective is to control the
prices and reduce the inflationary pressures in the economy.
Controlled expansion of money supply was essential for growth
with reasonable price stability in the country.
o ACHIEVE STABILITY IN THE EXTERNAL RUPEES
o TO PROMOTE SAVINGS AND INVESMENTS

5. KEY INDICATOR TO MEASURE
MONETARY PERFORMANCE:
• BANK RATE
• REPO RATE
• REVERSE REPO RATE
• STATUTORY LIQUIDITY RATIO
• CASH RESERVE RATIO
• OPEN MARKET OPERATIONS
• MULTIPLE RATES OF INTEREST
• MARGINAL STATUTORY FACILITY RATE

6. BANK RATE:
– Bank rate is the interest rate at which a nation’s central bank
lends money to their domestic banks. And the present rate is
6.25%. When RBI increases the bank rate, the cost of borrowing
for banks rises and this credit volume gets reduced leading to
decline in supply of money. Thus, increases in bank rate reflects
tightening of RBI monetary policy.

7. OPEN MARKET OPERATIONS
Open market operations refer to the sale and purchase of securities, foreign
exchange and gold by the government. The central bank seeks to influence the
economy either by increasing the money supply or the by decreasing the money
supply to increase money supply , the central bank purchases government
securities from bank and public e.g. If the reserves banks buys securities worth Rs
50 crores from the commercial banks , then the reserves of the commercial banks
will increase by the 50 crores and this money will come in circulation . Conversely ,
when the central bank sells securities to the banks , the deposits in the banks
would get reduced resulting in contraction of credit and reduction in money
supply.

8. CASH RESERVE
REQUIREMENTS
– Commercial banks in every country maintain a certain percentage of their
deposits in the form of balance with the central bank which is known as CRR or
cash reserve requirement. If CRR is 10 % , for example , the maximum amount a
bank can lend is equivalent to 90% of total reserves. The methods of CRR is the
most direct and effective methods of credit control. And the present rate of the
cash reserve ratio is 4%.

9. STATUTORY LIQUIDITY
RATIO(SLR)
– Apart from cash reserves requirements (RBI act 1934) all commercial banks are
required to maintain , under sec 24 of the banking regulation act 1949, liquid
assets in the form of cash, gold and unencumbered approved securities .this is
known as statutory liquidity ratio and it can not be less than 25% of their total
demand and time deposits liabilities. The reserves bank of India is empowered
to change this ratio. And the present rate of the statutory liquidity ratio is –
20%.

10. REPO RATE(RR):
– Repo rate is the rate at which the RBI lends money to commercial banks. And
this is the short term borrowings and in this rate banks have to mortgaged
securities with the RBI against borrowings. And the current rate of repo is 6%.
– Example: if higher the repo rate higher the cost of short-term money and vice-
versa.

11. REVERSE REPO RATE(RRR):
– Reverse repo rate is the rate of interest offered by RBI, when banks deposit
their surplus funds with the RBI for short periods. When banks have surplus
funds but have no lending or investment options, they deposit such funds with
RBI. Banks earn interest on such funds. And the current rate of the reverse repo
rate is 5.75%.

12. MARGINAL STANDING
FACILITY:
– Marginal standing facility is a new liquidity adjustment facility window created
by RESERVE BANK OF INDIA in its credit policy of May 2011. MSF is the rate at
which the banks are able to borrow overnight funds from RBI against the
approved government securities. And the current rate of marginal standing
facility is 6.25%.

13. THANK YOU