2. INTRODUCTION
It is the Central Bank of India
established on 1st April under
Reserve Bank of India Act.
Headquartered in Mumbai
(Maharashtra). It's present
governor is Shaktikanta Das.
It has 22 regional offices, most
of them in State Capitalists.
3. FUNCTIONS OF RBI
Issue of Currency Notes
Banker to the government
Banker to the Banks
Controller of credit
Custodian of foreign reserve
4. QUANTITATIVE
CONTROLS
Bank rate
Open market operation
Cash reserve ratio
Statutory liquidity ratio
Repo rate and reverse repo rate
Quantitative methods are those which aim at
controlling the total volume of credit. they
are used to regulate the quantity of credit
created by banks. By using this method,
Central bank controls the amount of credit.
These includes:
5. Bank Rate:
The bank rate is the minimum rate at which the central
bank lends money and rediscounts first-class bills of
exchange and securities held by commercial banks.
Open Market Operation
The sale and purchase of security in the long run/short
run by the RBI in the money market is known as open
market operations. This is a popular instrument of the
RBI's monetary policy.
Purchase and sell of securities may lead to expansion
and contraction of money supply in the money market.
6. Cash reserve ratio
CRR refers to a certain percentage of commercial
bank's net demand and time liability that commercial
banks have to maintain with the RBI at all times.
Current CRR is 4.5%
Statutory liquidity ratio
The statutory liquidity ratio refers to that proportion of
aggregate deposits which the commercial banks have to
keep a certain percentage of reserves to be maintained in
the form of gold and foreign securities.
Current SLR is 18%
7. Repo Rate
A Repo rate is a rate at which commercial banks borrow
money by selling their securities to the RBI to maintain
liquidity. Commercial banks sell their securities in case
of a shortage of funds or due to some statutory
measures. It is one of the main instruments of the RBI
to keep inflation under control.
Current Repo rate is 5.9%
Reverse Repo rate
Sometimes, the RBI borrows money from commercial
banks when there is excess liquidity in the market. In
that case, commercial banks get benefits by receiving
the interest on their holdings with the RBI.
Current Reverse repo rate is 3.35%
8. QUALITATIVE
CONTROLS
Margin Requirement
Rationing of Credit
Moral Suasion
Qualitative Methods of credit control
refers to the monetary policy by the
central bank which includes those
instruments that focus on the
selected sectors of the economy to
control and regulate the money
supply. It includes:
9. Margin requirement refers to the difference
between the current value of the security offered
for loan (called collateral) and the value of loan
granted. It is adopted by the central bank in order
to stabilize the economy from inflation or deflation.
Rationing of credit refers to fixation of credit
quotas for different business activities which is
introduced when the flow of credit is to be checked
particularly for speculative activities in the
economy.
MARGIN REQUIREMENT
RATIONING OF CREDIT
10. Under this method, the Central Bank merely
uses its moral influence on the commercial
banks. It includes the advice, suggestion
request and persuasion with the commercial
banks to co-operate with the Central Bank.
The banks are advised to restrict the flow of
credit during inflation and be liberal in
lending during deflation..
MORAL SUASION
11. CENTRAL BANK ACROSS WORLD
U.S. Federal Reserve System (Fed)
European Central Bank (ECB)
Bank of England (BOE)
Bank of Japan (BOJ)
Swiss National Bank (SNB)
Bank of Canada (BOC)
Reserve Bank of New Zealand (RBNZ)
Reserve Bank of Australia (RBA)
12. Commonly referred to as Fed, central bank of U.S.
The U.S. dollar used for approximately 90% of all of
the world's currency transactions.
The Fed is responsible for the effective operation of
the U.S. economy while keeping the best interests of
the public in mind.
Five key functions of Fed:
Promotes Monetary Policy
Maintains Financial stability
Preserves the soundness of individual financial
institution
Promotes the safety of payment and settlement system.
Oversees consumer protection.
U.S. Federal Reserve System (Fed)
13. ECB was established in 1999, headquartered in
Frankfurt, Germany
The governing council of the ECB consists of six
members of the executive board of the ECB, plus the
governors of all the national central banks from the
19 eurozone countries.
The governing council of the ECB decides on changes
to monetary policy.
Whenever ECB plans to change interest rates, it
generally gives the market ample notice by warning of
an impending move through comments to the press.
European Central Bank (ECB)
14. BOE is publicly-owned, which means it reports to the
British people through its parliament.
Founded in 1694, it is often treated as one of the world's
most effective central banks.
Its mission is to maintain the stability of
England's monetary and financial systems. To
accomplish this, the central bank has an inflation
target of 2%.
The BOE also ensures:
The soundness of the nation's financial institutions.
The security of its currency
A financial system that's free from unnecessary risk
Bank of England (BOE)
15. The SNB is an independent bank that is responsible
for its nation's monetary policy.
Its main goal is to maintain the stability of prices
while overseeing economic conditions in the country.
The bank has a three-person committee that makes
decisions on interest rates.
Swiss National Bank (SNB)
16.
17. Monetary policy is the procedure by which the
monetary authority of a nation, normally the
central bank or currency board, controls either the
expense of short-term borrowing or the cash
supply.
Monetary policy strategies include revising
interest rates and changing bank reserve
requirements.
Monetary policy is commonly classified as either
expansionary or contractionary.
The Federal Reserve commonly uses three
strategies for monetary policy including reserve
requirements, the discount rate, and open market
operations.
18. As a part of expansionary monetary policy, the
subsequent monetary authority often lowers the
interest rates for consumers through various measures
that make money-saving relatively unfavorable and
promotes spending in the market. It leads to an increase
in money supply in the market, with the hope of a boost
in investment and consumer spending.
Example : Financial Crisis 2008, Covid- 19
Expansionary Monetary Policy
19. Contractionary monetary policy is when a central bank
uses the tools of monetary policy in order to fight
inflation. Since inflation is a sign of an overheated
economy, the bank must slow economic growth in order
to control the situation. So, the contradictory monetary
policy may result in slowing down economic growth and
an increase in unemployment but is often required to
control inflation.
Example : Inflation in late 1970s.
Contractionary Monetary Policy
