Monetary policy uses various tools like interest rates, bank rates, cash reserve ratios, and statutory liquidity ratios to control the supply of money and credit in an economy. The goals are to maintain stable prices and low unemployment. Expansionary policy increases the money supply to boost the economy and combat unemployment during recessions by lowering interest rates. Contractionary policy decreases the money supply or slowly increases it to combat inflation by raising interest rates. In India, the Reserve Bank of India uses tools like repo rates, reverse repo rates, cash reserve ratios, and statutory liquidity ratios to influence monetary conditions.

1. MONETARY POLICY
PRESENTED BY
AJITH YESHWANTH
UTTHAM KUMAR
VIJAY THOMPSON
AMITY GLOBAL BUSINESS SCHOOL

2. Monetary policy is the process by which the monetary
authority of a country controls the supply of money, often
targeting a rate of interest to attain a set of objectives oriented
towards the growth and stability of the economy.

3. Goals – to maintain relatively stable prices and low
unemployment

4. Monetary policy is referred to as either being an expansionary policy,
or a contractionary policy.
Expansionary policy increases the total Contractionary policy decreases the total
supply of money in the economy rapidly money supply, or increases it slowly.

5. Expansionary policy is used to
combat unemployment in a recession by Contractionary policy involves raising
lowering interest rates interest rates to combat inflation.

6. In every country a special institution exists which
has the task of executing the monetary policy

7. TOOLS OF MONETARY POLICY IN INDIA
• BANK RATES
• CRR
• SLR
• REPO RATE

8. BANK RATE
• Bank Rate is the rate at which
RBI allows finance to commercial
banks.
• Bank Rate is a tool, which central
bank uses for short-term
purposes.
• Any upward revision in Bank Rate
by central bank is an indication
that banks should also increase
deposit rates as well as Prime
Lending Rate.
• This any revision in the Bank rate
indicates could mean more or
less interest on your deposits and
also an increase or decrease in
your EMI.

9. CRR
• RBI uses CRR either to drain
excess liquidity or to release
funds needed for the economy
from time to time.
• Increase in CRR means that banks
have less funds available and
money is sucked out of
circulation.
• Thus we can say that this serves
duel purposes i.e. it not only
ensures that a portion of bank
deposits is totally risk-free, but
also enables RBI to control
liquidity in the system, and
thereby, inflation by tying the
hands of the banks in lending
money.

10. SLR
• SLR stands for
Statutory Liquidity
Ratio.
• This term indicates the
minimum percentage of
deposits that the bank
has to maintain in form
of gold, cash or other
approved securities.

11. REPO AND REVERSE REPO RATE
REPO RATE REVERSE REPO RATE
• It is the rate at which the RBI • It is the rate at which banks
lends shot-term money to the park their short-term excess
banks. When the repo rate liquidity with the RBI. The RBI
increases borrowing from RBI uses this tool when it feels
becomes more expensive. there is too much money
• Therefore, we can say that in floating in the banking
case, RBI wants to make it system.
more expensive for the banks • An increase in the reverse
to borrow money, it increases repo rate means that the RBI
the repo rate; similarly, if it will borrow money from the
wants to make it cheaper for banks at a higher rate of
banks to borrow money, it interest. As a result, banks
reduces the repo rate would prefer to keep their
money with the RBI

12. Second Quarter Review of Monetary
Policy 2010-11
• The Bank Rate has been retained at 6.0 per cent.
• It has been decided to increase the repo rate
under the liquidity adjustment facility (LAF) by
25 basis points from 6.0 per cent to 6.25 per cent
with immediate effect.
• It has been decided to increase the reverse repo
rate under the LAF by 25 basis points from 5.0
per cent to 5.25 per cent with immediate effect.
• The cash reserve ratio (CRR) of scheduled banks
has been retained at 6.0 per cent of their net
demand and time liabilities.

13. Expected Outcomes
• Sustain the anti-inflationary thrust of recent
monetary actions and outcomes in the face of
persistent inflation risks.
• Rein in rising inflationary expectations, which
may be aggravated by the structural nature of
food price increases.
• Be moderate enough not to disrupt growth.

14. THANK YOU !