This document discusses monetary policy in India. It defines monetary policy as the central government's policy with respect to the quantity of money in the economy, interest rates, and exchange rates, as executed by the Reserve Bank of India. The objectives of monetary policy are maintaining price stability, ensuring adequate credit flows to support growth, rapid economic growth, full employment, and equal income distribution. The methods used to achieve these objectives include both qualitative methods like directing lending to priority sectors, and quantitative methods like required reserve ratios, statutory liquidity ratios, and repo and reverse repo rates which the central bank uses to control money flows.

1. S.Bharathi
B.S ABM
Aman Sharma
Dept. of Business Administration .NIT,KKR

2. Fiscal Policy:
It is the budgetary stance of Central Govt. decision to decide the
taxation rate (Income) and expenditure policy for a Financial year.
Generally, it is formulated annually.
Monetary Policy:
It is the Central Govt. policy w.r.t. the quantity of money in the
economy, the rate of interest & the exchange rate executed through
Central Bank as RBI in India. Monetary Policy is changed
Monetary Policy

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4. • Maintaining price stability
• Ensuring adequate flow of credit to the
productive Sectors of the economy to support
economic growth
• Rapid economic growth
• Full employment
• Equal income distribution

5. Methods to achieve objectives
These methods can be categorized as:
– General/ quantitative methods
– Selective/ qualitative methods

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Money Control in an Economy
Qualitative Control :
Through this measure Central Govt notifies priority sectors for
lending. Ex. – Agri Sector, Small Scale Industries &
Handloom Sector etc.
Quantitative Control :
Through this measure Central Bank decides various
rates to control flow of money in economy. These are
generally used as means of inflation control.

7. • CASH RESERVE RATIOCRR
• STATUTORY LIQUIDITY RATIOSLR
• BANK RATEB R
R R
RRR
MSF
BA
• REPO RATE
REVERSE REPO RATE
MARGINAL STANDING FACILITY
BASE RATE
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8.  CRR is the ratio of Bank’s total NDTL (Net Demand &
Time Liabilities)with the RBI in the form of cash
reserves.
 This was fixed to be in the range of 3% to 15% (1956).
 A recent Amendment (2007) has removed the 3
percent floor and provided a free hand to the RBI in
fixing the CRR.
An increase in CRR sucks the amount from the economy
while a decrease injects the amount into the economy.
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9. SLR is the ratio of Bank’s total NDTL (Net Demand & Time
Liabilities) in the form of cash reserves, Gold,
Unencumbered securities. This must be kept by the bank.
 This was fixed to be in the range of 20% to 25% .
At present it is 21.5 %
SLR = (Liquid Assets/NDTL)*100
An increase in SLR sucks the amount from the economy
while a decrease injects the amount into the economy.
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10. The interest rate which the RBI charges on its
long- term lending is known as the Bank Rate.
The clients who borrow through this route are the
GOI, state govt., bank, financial institution, co-operative
bank, NBFCs,etc.
The rate has direct impact on the lending activities of
the concern lending bodies operating in the Indian
financial system.
Currently, Bank Rate is 7.75 %.
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11. The interest rate which the RBI charges from
Commercial Banks on its short -term lendings to them is
known as the Repo Rate.
At present it is 6.75 % .
The concept of REPO RATE was introduced in December
1992.
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12. It is the rate of interest at which RBI pays to its clients who offer
short term deposits to it.
 At present the rate is 5.75%.
It is the reverse of the repo rate & this concept was introduced in
12 November 1996 by the RBI.
Use of this tool :- This tool is utilized by the RBI in the wake of over
money supply with the Indian bank .
It has emerged as very important tool in the direction of following
cheap interest regime- the general policy of the RBI since reform
process started.
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