Monetary policy

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montery policy

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Monetary policy

  1. 1. Monetary policy is the process by which the monetary authority of a country – mostly a central bank like the RBI – controls the supply of money. It does this by targeting the interest rates at which money is borrowed and lent.
  2. 2. Monetary policy is the process by which the government, central bank (RBI in India), or monetary authority of a country controls (i)the supply of money (ii) availability of money (iii) cost of money or rate of interest ,  in order to attain a set of objectives oriented towards the growth and stability of the economy. Monetary theory provides insight into how to craft optimal monetary policy.  Monetary policy is referred to as either being an expansionary policy, or a contractionary policy, where an expansionary policy increases the total supply of money in the economy, and a contractionary policy decreases the total money supply. Expansionary policy is traditionally used to combat unemployment in a recession by lowering interest rates, while contractionary policy involves raising interest rates in order to combat inflation. Monetary policy is contrasted with fiscal policy, which refers to government borrowing, spending and taxation 
  3. 3. Goal of Monetary Policy Promote maximum sustainable levels of economic output stable price
  4. 4. TYPES OF CONTROL Qualitative Control Quantitative Control
  5. 5.  Bank Rate  Open market operation  CRR  SLR  Repo rate  Reserve Repo Rate
  6. 6.  Marginal Rate  Rationing of credit.
  7. 7. Lending Rate Economy Money supply Inflation Interest rate Gross domestic product (GDP)
  8. 8. MP is a part of general economic policy of the govt.  Thus MP contributes to the achievement of the goals of economic policy.  Objective of MP may be: a. Full employment b. Stable exchange rate c. Healthy Bop Economic growth Reasonable d. Price Stability e. Greater equality in distribution of income & wealth Financial stability 
  9. 9.  Low Inflation  Political Independence
  10. 10.  Conflicting  Time Lag Goals

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