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- 1. Inflation Management By RBI By : Group 1 Team Member-: Sumit Sunil Hinanshi Ram
- 3. Monetary Policy & Its Aspects • Used as an effective tool to target economic growth. • Used mainly to control money supply Monetary Policy Tools • Is considered as a major factor for inflation and Growth Money supply •Determines the total amount of currency floating in the economy. • Rise/fall in general price level • Affects the economic growth of the country Inflation & Growth
- 4. Monetary Policy Approach Tight Monetary Policy •Govt. sells Securities (OMO) •CRR, Repo Rate, Bank Rates •Monetary Supply •Interest Rates •Investment Expenditures •Aggregate Demand •Price Level Expansionary Monetary Policy Govt. buys Securities (OMO) CRR, Repo Rate, Bank Rates Monetary Supply Interest Rates Investment Expenditures Aggregate Demand Aggregate Output @Source: RBI Reports
- 5. Instruments of Monetary Policy Bank Rate Rate of interest CRR, SLR Repo Rate Reserve Repo Rate Quantitative
- 6. Bank Rate : It’s Impact Central Bank Loans & Advances Commercial /Domestic Bank Loans & Advances Consumer / Customers * Decrease Money Supply in Economy * Inflation Control * Economic Growth Suffers *Increase in Money Supply *Economic Growth Targeted *Inflation Control Suffers
- 7. Repo Rate Central Bank Lends Money in the event of shortfall of funds Commercial Banks Repo Rate Trends @Source: RBI Annual Report, 2010
- 8. Repo Rate and It’s Impact Repo Rate Increases Disincentive for Banks to Borrow money from RBI Reduces Money Supply Reduces Inflation Repo Rate Decreases Increases Money Supply Growth Targeted Trade Off
- 9. Cash Reserve Ratio Commercial Banks Specified Minimum fraction of Total Deposits of customer Hold as Reserve either in Cash or Deposits Central Bank
- 10. Cash Reserve Ratio and It’s Impact • Higher Cost for Banks • Higher Cost for Borrowers • Money Supply Reduces • Inflation Control CRR • Cost Consideration taken cared • Money Supply Increases • Growth TargetedCRR
- 11. Repo Rate, CRR and MSF Trends
- 12. Impact of Monetary Policy Country’s Growth Inflation Value of its Currency Level of Employment Investment Prospects Directly Indirectly
- 13. Highlights of RBI’s First Bi-Monthly Monetary Policy Statement(5th April, 2017): • Money Supply Increase, Growth TargetedRepo Rate Cut by .25% to 6.50% • Money Supply Increase, Growth Targeted Reverse Repo Rate hiked by .25% to 6% • Stable ImpactCRR unchanged at 4% • More Money Supply (Bank gets urgent credit at lower cost)MSF rate cut by .75% • Growth Targeted Monetary Policy (Expansionary)Growth Forecast 7.6% • Controlled Inflation, but likely to increaseExpects Inflation around 5% • Upward Pressure of Inflation of 1.5%7th Pay Commission Impact
- 14. Conclusion MP is management of expectation. "India’s growth story at least in the short run depends critically on inflation. There is a felt need that, if to bring down inflation, growth in the short run needs to be compromised then we should do that. It is important therefore to bring down inflation as quickly as possible and with as little damage to the growth and employment story as possible.“
- 15. Thank You