montrary polciy

1. VISHAL SINGH
ARJUN CHAHUAN
AKASH SHARMA
NITIN TYAGI

2. MONETARY POLICY
MEANING
Monetary policy refers to the steps taken by
the RBI to regulate the cost & supply of money
& credit in order to achieve the socio-economic
objectives of the economy.
Monetary policy influences the supply of
money, the cost of money or the rate of
interest and the availability of money.

3. DEFINITION OF MONETARY POLICY
According to D.C. ROWAN , `` Discretionary act
undertaken by the authorities designed to
influence (a) the supply of money (b) cost of
money or rate of interest and (c) the
availability of money.”

4. MEANING
Monetary policy is an instrument which effect
the credit flow in an economy.
The variation effect the demand & supply of
credit in an economy, and the level or nature
of economic activities.

5. OBJECTIVE
Stability in price level
Economic development
Arrangement of full employment
Expansion of credit facility
Equality & Justice
Stability in exchange rate

6. INSTRUMENTS
GENERAL (QUANTITATIVE) Methods
SELECTIVE (QUALITATIVE) Methods

7. GENERAL (QUANTITATIVE) Methods
Meaning:-
These methods help in credit control in the
economy.
Affect total quantity of the credit.

8. Types of Quantitative methods
A. Bank rate policy
B. Open market policy
C. Cash reserve ratio
D. Statuary reserve ratio

9. Bank Rate policy
Traditional approach:- Bank rate means on
which central bank discounts and rediscount
the eligible bills.
Today’s approach:- Bank rate means the
minimum rate on which central bank provides
financial accommodation to commercial bank
in the discharge of its function as the lender of
the last resort.

10. Effect of Bank rate
Increase in bank rate
 Increase in bank rate charge by
the central bank on its
advance to commercial bank.
 Commercial bank increase the
rate of interest on their loan.
 Demand for the credits and
loan decrease.
 Flow of the money decrease in
the economy
 Use in inflationary situation
Decrease in bank rate
 Decrease in bank rate charge
by the central bank on its
advance to commercial bank.
 Commercial bank decrease the
rate of interest on their loan.
 Demand for the credits and
loan increase.
 Flow of the money increase in
the economy
 Use in depression situation

11. OPEN MARKET OPERATION
Its include the sales and purchase by the central
bank of ….
Assets
Foreign exchange
Gold
Government securities
Company securities

12. Use of Open Market operation
In the inflationary situation
 Central bank decrease the
money supply.
 Central bank sale out the
securities to commercial
bank and control money
supply.
In the depressionary situation
 Central bank increase the
money supply.
 Central bank purchase the
securities from the
commercial bank.

13. CASH RESERVE RATIO
Commercial bank has to keep a certain
percentage of his deposits with central bank.
It control the cash flow in economy.
 It keeps changes in monetary policy framed
by central bank of a country.

14. STATUARY LIQUIDITY RATIO
Commercial bank is to keep a certain
percentage of his deposit as liquid asset.
It control the cash flow in economy.
 It keeps changes in monetary policy framed
by central bank of a country.

15. Use of C.R.R. & S.L.R
In Inflationary situation
o Increased the percentage of
cash reserve ratio and
Statutory liquidity ratio
o It reduces the supply of
money in an economy
In Depressionary situation
o Decreased the percentage
of cash reserve ratio and
Statutory liquidity ratio
o It increases the supply of
money in an economy

16. Function of credit regulation the
quantitative methods
For expansion of credit
 Reduce the bank rate
 Purchase of securities
 Reduce the C.R.R.
 Reduce the S.L.R.
For contraction of credit
 Increase the bank rate
 Sales of securities
 Increase the C.R.R.
 Increase the S.L.R.

17. EXPANSIONARY MONETARY POLICY

18. TIGHT MONETARY POLICY

19. SPECIFIC OR QUALITATIVE CREDIT CONTROL
 Adopt for expansion and contraction of credit
to attain specific objective.

20. Methods of qualitative credit control
• Credit rationing
• Change in margin
• Direct action

21. Marginal Requirement:
Marginal Requirement of loan can be
increased or decreased to control the flow of
credit for e.g. – a person mortgages his
property worth Rs. 1,00,000 against loan. The
bank will give loan of Rs. 80,000 only. The
marginal requirement here is 20%. In case the
flow of credit has to be increased, the
marginal requirement will be lowered.

22. RATIONING
• Under this method there is a maximum limit
to loans and advances that can be made,
which the commercial banks cannot exceed.

23. DIRECT ACTION
• Under the banking regulation Act, the central
bank has the authority to take strict action
against any of the commercial banks that
refuses to obey the directions given by
Reserve Bank ofIndia.

24. Moral Suasion
This method is also known as “Moral
Persuasion” as the method that the Reserve
Bank of India, being the apex bank uses here,
is that of persuading the commercial banks to
follow its directions/orders on the flow of
credit. "A LIVER WITH OUT TEETH"

26. MEANING
• Measures related to taxation & public
expenditure are normally called fiscal
measures and the policy concerning them as
known as FISCAL POLICY.
• In short, fiscal policy or budgetary policy
consists of steps & measures which the
government in order to fulfill the aims of
economic policy.

27. Objective of fiscal policy
To achieve and maintain the full employment
in the economy.
Attain Economic growth in long term.
Achieve economic stability.
To guide the allocation of existing resources
into socially necessary lines of development.

28. INSTRUMENTS
 PUBLIC EXPENDITURE
 TAXATION
 PUBLIC DEBT

29. PUBLIC EXPENDITURE
Meaning:-
 Government spending
 Productive
 Non-Productive

30. TYPES
PUMP PRIMING
 The government spending
which will have the effect of
setting the economy going
on the way towards full
utilization of resources.
 Example:- Gov Expenditure,
building infrastructure etc.
COMPENSATORY SPENDING
 The government spending
which will have the effect of
setting the social objective
and payment of interest on
debt.
 Example:- schools,
hospitals, pensions, relief
payments etc.

31. EFFECT
• Gov. exp should be reduced in inflation and
increased during depressions in case of a
deflationary situation in an economy.
Therefore it act as a balancing factor between
saving & investment

32. TAXATION
Meaning:-
Source of Revenue
Helps Gov. to do there exp.
Generated from public

33. Types of Tax
Direct Tax
• Direct tax are those tax
which a person pay to
government directly for
himself and can not enforce
on other.
• For example:- income tax,
wealth tax etc.
Indirect tax
• Indirect tax are those tax
which a person can on
others.
• For example:- service tax,
sales tax.

34. Effect of Taxation
Reduction in taxation
 Increase the disposable
income.
 Increase the consumption
power.
 Use for offsetting the
deflation forces
Increase in Taxation
 Decrease the disposable
income.
 Decrease the consumption
power.
 Use for offsetting the
inflation forces.

35. PUBLIC DEBT
When Gov. exp. are more then Gov. revenue
Government take Public Debt.
Deficit financing = Gov. exp. – Gov. revenue.
Government take the public debt to fulfill the
gap between the Gov exp and the revenue.

36. Types of public debt
Borrowing from public
Borrowing from commercial bank
Issue of new currency

37. EFFECT
• Public Debt effect the inflation and deflation
• If government take the borrowing from public
and banks it will decrease the cash flow in the
market and increase the deflation.
• If there is depression in economy government
repay the debt the public which increase the
cash flow of the money in market.

38. Some facts and figures
 MONETARY POLICY IS BEEN FRAMED BY?
RBI
 FISCAL POLICY IS BEEN FRAMED
Government
 PRESENT GOVERNOR OF R.B.I
Dr. Raghuram Rajan September 4, 2013
 PRESENT FINANCE MINISTER OF INDIA
Finance minister P Chidambaram
 CURRENT S.L.R
• 23%(w.e.f. 11/08/2012) (announced on 31/07/2012)
Decreased from 24% which was continuing since 18/12/2010
 CURRENT C.R.R
Cash Reserve Ratio (CRR)4.00% (wef 09/02/2013) -announced on 29/01/2013
Decreased from 4.25%which was continuing since 30/10/2012

39. ? ? ? ?
QUESTION
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40. THANK YOU