Instruments of Monetary Policy

1. Instruments of
Monetary Policy
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- Rahul Ranjan

2. Introduction

3. Introduction
● Monetary Policy refers to use of monetary instruments
under the control of the Central Bank to regulate magnitudes
such as Interest rates , Money supply and availability of
credit with a view to achieving the ultimate objective of
economic policy.
- Reserve Bank of India

4. Who Controls India’s
Monetary Policy ?

5. Who Controls India’s Monetary Policy ?
● The Reserve Bank of India (RBI) is vested with the
responsibility of conducting monetary policy. This
responsibility is explicitly mandated under the Reserve Bank
of India Act, 1934

6. Why Monetary Policy ?

7. Why Monetary Policy ?
● The Primary objective of monetary policy is to maintain price
stability while keeping in mind the objective of growth. Price
stability is a necessary precondition to sustainable growth.

8. Instruments of Monetary
Policy

9. Instruments of Monetary Policy
Repo Rate:
● Cash Reserve Ratio (CRR): The average daily
balance that a bank is required to maintain with the
Reserve Bank as a share of such per cent of its Net
demand and time liabilities (NDTL) that the Reserve
Bank may notify from time to time in the Gazette of
India.
● This has to be kept as security money in Current A/c
of RBI.

10. Instruments of Monetary Policy
Repo Rate:
● Statutory Liquidity Ratio (SLR): The share of NDTL
that a bank is required to maintain in safe and liquid
assets, such as, unencumbered government
securities, cash and gold. Changes in SLR often
influence the availability of resources in the banking
system for lending to the private sector.

11. Instruments of Monetary Policy
Repo Rate:
● Repo Rate : It is a rate at which RBI lends money to
commercial bank against securities in case
commercial bank fall short of funds.
● It is a short - term loan.

12. Instruments of Monetary Policy
Repo Rate:
● Reverse Repo Rate : It is a short - term borrowing
rate at which RBI borrows money from commercial
banks.

13. Instruments of Monetary Policy
Repo Rate:
● Marginal Standing Facility (MSF): : A facility under
which commercial banks can borrow additional
amount of money from the Reserve Bank for
emergency needs.
● Commercial Bank can take upto 1% of their liabilities
& time deposits.

14. Instruments of Monetary Policy
Repo Rate:ou
● Bank Rate: It is the rate at which the Reserve Bank is
ready to lend money to commercial banks with without
any security.

15. Instruments of Monetary Policy
Repo Rate:
● Open Market Operations (OMOs): These include
both, purchase and sale of government securities in
the open market in order to expand and contract the
amount of money in the banking system.

16. Instruments of Monetary Policy
Repo Rate:
● Market Stabilisation Scheme (MSS): This instrument
for monetary management was introduced in 2004.
Surplus liquidity of a more enduring nature arising
from large capital inflows is absorbed through sale of
short-dated government securities and treasury bills.
The cash so mobilised is held in a separate
government account with the Reserve Bank.

17. References
Repo Rate:
● Reserve Bank Of India

18. Thank You