Monetary policy refers to the actions taken by central banks to control the supply of money and credit in an economy and influence interest rates and inflation. The main instruments of monetary policy include reserve ratios, open market operations, bank rates, liquidity adjustment facilities, and marginal standing facilities. Through these tools, central banks can pursue contractionary policies like increasing interest rates to reduce inflation or expansionary policies like decreasing rates to stimulate the economy. The goal overall is to use monetary policy to maintain price stability and control inflation and deflation.

1. Monetary Policy
Control of Price Inflation

2. What is Monetary Policy?
The policy followed by the
central bank.
To control the money
supply in the economy and
thereby fight both inflation
and deflation.

3. Types of Monetary Policy
Dear Money Policy
● Difficulty in
obtaining credit
● High interest rates
Cheap Money Policy
● Easily attainable
credit
● Low interest rates

4. Instruments of Monetary Policy
1. Reserve Ratios
A) Cash Reserve Ratio CRR (4%)
The share of net demand and time liabilities
that banks must maintain as cash balance with
the RBI

5. B) Statutory Liquidity Ratio SLR (21.5%)
The share of net demand and time liabilities that banks must maintain in safe and liquid assets, such
as government securities, cash and gold.

6. 2. Open Market Operations OMO
Purchase and Sale of government securities over medium term to determine liquidity in the economy.

7. 3. Bank Rate (8.25%)
It is the policy rate at which the RBI
rediscounts the bills of exchange of
commercial banks

8. 4. Liquidity Adjustment Facility
Consists of daily infusion or absorption of
liquidity on a repurchase basis, through repo
(liquidity injection) and reverse repo (liquidity
absorption) auction

9. 7.25%

10. 5. Marginal Standing Facility MSF
It is an overnight borrowing from RBI by
commercial banks upto 1% of NDTL
It works same as Repo.
MSF rate is Repo rate +1% (8.25)

11. Qualitative Tools
1. Minimum Margin Requirements
2. Consumer Credit Regulation
3. Selective Credit Control
4. Moral Suation
5. Rationing of Credit
6. Direct Action

12. THANK
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