1. Evaluate the Statement:
"Investors should be aware of the
monetary policy before planning their
investments“.
Illustrate with example.
PGDBM-6
Group-4
Presented By: Enrollment No.
Alpha Nayak E13CC1079751
Anupriya Singh E13CC1078654
Karishma Biswal E13CC1081714
Smruti Ranjita Suar E13CC1079865
Subhasantak Mohanty E13CC1081206
Sujnani Kumari Gupta E13CC1080945
2. Agenda
1. Introduction
2. Monetary policy
3. Key Objectives of Monetary Policy
4. Instruments used by RBI under its monetary policy
5. Illustration using 3 Investment Options
6. Implication on Bank deposits
7. Implication on Stock market
8. Implication on Government Securities
9. Conclusion
3. Introduction
While economic education and awareness make private decision making
easier, this knowledge and insight also may make the central bank’s job easier.
A central bank’s commitment to education, information, and
transparency enhances that central bank’s credibility , as well as the public’s
ability to understand and anticipate policy decisions.
How does this work?
If the public is able to accurately anticipate monetary policy decisions, then it
also can incorporate better-informed expectations into private decision
making.
Central banks can contribute to this awareness in at least two ways: through
transparency in monetary policy making and public information and education
efforts.
source:SF%20Fed%20%20Awareness%20about%20monetary%20lpolicy
4. Monetary policy
Monetary policy is the macroeconomic policy laid down by the
central bank.
It involves management of money supply, interest rate and the
demand side of economic policy used by the government of a
country to achieve macroeconomic objectives like inflation,
consumption, growth and liquidity.
The RBI implements the monetary policy through open market
operations, bank rate policy, reserve system, credit control
policy, moral suasion and through many other instruments.
5. Key Objectives of Monetary
Policy
To maintain Price
Stability (to
control the rate of
inflation)
To achieve high
Economic Growth
(to attain higher
percentage
growth of GDP)
6. CRR
• The percentage of the bank deposits that banks have to keep with RBI
in the form of reserves or balances.
SLR
• The quantity of liquid assets that a bank has to keep with itself (in the
form of cash, precious metals, etc.) for its time and demand liabilities.
OMO
• The operation of buying and selling of primarily government bonds
from or to the public or banks.
Repo
rate
• The rate at which RBI lends to commercial banks generally
against government securities(for a short term).
Bank
rate
• The rate at which RBI lends to commercial banks through its discount
window to help the banks meet depositor’s demands and reserve
requirements(for a long term).
Instruments used by RBI under its
Monetary Policy
9. Implication on Bank Deposit
(contd.)
OMO
When G-secs are sold, less
money prevails in the system,
(aim behind it being
controlling inflation), deposit
rate increases
When G-secs are bought
(issued previously),more
money prevails in the system,
(aim behind it being higher
economic growth), deposit
rate decreases
10. Implication on Bank Deposit
(contd.)
Repo rate
Repo rate increases,
lending intrest rate
increases, deposit
rate too increases
Repo rate decreases,
lending intrest rate
decreases, deposit
rate too decreases
Bank rate
Bank rate increases,
lending intrest rate
increases, deposit
rate too increases
Bank rate decreases,
lending intrest rate
decreases, deposit
rate too decreases
11. Implication on Stock Market
CRR
CRR increases, Economic
growth decreases,
production cost increases,
profitability of company
decreases, stock market
crashes
CRR decreases, Economic
growth increases,
production cost decreases,
profitability of company
increases, stock market
flourishes
SLR
SLR increases, Economic
growth decreases,
production cost increases,
profitability of company
decreases, stock market
crashes
SLR decreases, Economic
growth increases,
production cost decreases,
profitability of company
increases, stock market
flourishes
12. Implication on Stock Market
(contd.)
OMO
When G-secs are sold, less
money prevails in the
system, (aim behind it being
controlling inflation),
production & product cost
increases, profit to company
decreases, share price
decreases & stock market
crashes
When G-secs are bought
(issued previously),more
money prevails in the
system, (aim behind it being
attaining higher economic
growth), production &
product cost decreases,
profit to company increases,
share price increases & stock
market booms
13. Implication on Stock Market
(contd.)
Repo rate
Repo rate increases, lending
intrest rate increases,
production & product cost
increases, profit to company
decreases, share price
decreases & stock market
crashes
Repo rate decreases, lending
intrest rate decreases,
production and product cost
decreases, profit to company
increases, share price
increases & stock market
booms
Bank rate
Bank rate increases, lending
intrest rate increases,
production & product cost
increases, profit to company
decreases, share price
decreases & stock market
crashes
Bank rate decreases, lending
intrest rate decreases,
production and product cost
decreases, profit to company
increases, share price
increases & stock market
booms
14. Implication on Government
securities
CRR
CRR increases (RBI is
targeting inflation),
further, RBI sells G-sec
bonds to pull out excess
money from the system
CRR decreases (RBI is
targeting economic
growth), further, RBI
buys pre-issued G-sec
bonds to pump in more
money into the system
SLR
SLR increases (RBI is
targeting inflation),
further, RBI sells G-sec
bonds to pull out excess
money from the system
SLR decreases, (RBI is
targeting economic
growth), further, RBI
buys pre-issued G-sec
bonds to pump in more
money into the system
15. Implication on Government
securities (contd.)
OMO
When G-secs are sold, RBI’s
aim is to pull out money
from the system (to control
inflation)
When G-secs are bought
(issued previously), RBI’s
aim is to pump more money
into the system (to attain
higher economic growth)
16. Implication on Government
securities (contd.)
Repo rate
Repo rate increases, lending
interest rate increases (RBI
is targeting inflation),
further, RBI sells G-sec
bonds to pull out excess
money from the system
Repo rate decreases, lending
intrest rate decreases (RBI
is targeting economic
growth), further, RBI buys
pre-issued G-sec bonds to
pump in more money into
the system
Bank rate
Bank rate increases, lending
interest rate increases (RBI
is targeting inflation),
further, RBI sells G-sec
bonds to pull out excess
money from the system
Bank rate decreases, lending
intrest rate decreases (RBI
is targeting economic
growth), further, RBI buys
pre-issued G-sec bonds to
pump in more money into
the system
17. Conclusion
Awareness about the Monetary policy of a country is undoubtedly
beneficial for the financial well-being of its citizens.
People unaware of it cannot yield (or make) the most from a
situation at hand, as it leaves them clueless about where the
economy is heading.
Knowledge about the economy, changes people’s perception &
vision.
If they know well, only then can they have a financial plan that is
better & healthy.
For, “Knowledge is Power &
Power ofcourse, fetches Wealth”
