The document summarizes key recommendations from the Urjit Patel Committee report on reforming India's monetary policy framework. The committee recommended that the Reserve Bank of India (RBI):
1. Adopt inflation targeting and use the Consumer Price Index (CPI) as the nominal anchor, setting an inflation target of 4%. This would make the RBI's policy objective clear and easy to monitor.
2. Abandon the multiple indicator approach, which lacks a clear nominal anchor and target. It has not been effective in controlling inflation.
3. Focus only on inflation rather than multiple objectives like growth, employment, and exchange rates. External factors heavily influence some of these other objectives.
The document is a report from the Expert Committee to Revise and Strengthen the Monetary Policy Framework in India. It discusses the changing global monetary policy environment and the need to review India's monetary policy framework. The committee was appointed in September 2013 by the Governor of the Reserve Bank of India to recommend ways to revise and strengthen India's monetary policy framework to make it more transparent and predictable. The committee comprised both internal and external experts in monetary economics.
The document summarizes the key aspects of monetary policy in India. It discusses how monetary policy is announced twice a year by the Reserve Bank of India to influence money supply, interest rates, inflation and employment. The objectives of monetary policy are sustained economic growth, full employment and price stability. The policy impacts individuals through interest rates, domestic industries like exporters through export refinancing rates, and aims to maintain a balance between jobs, wages and output in the long run.
This document summarizes monetary and fiscal policies in India. It defines monetary policy as the Reserve Bank of India's use of tools to regulate money supply, credit availability, and interest rates. The objectives of monetary policy are maintaining price stability, adequate credit flow, economic growth, and full employment. Tools include bank rates, cash reserve ratios, open market operations, and credit controls. Fiscal policy involves government revenue and spending and is used to address recession or inflation. The objectives and tools of India's monetary and fiscal policies are discussed.
About Monetary policy review committee role, function, issues, challenges and way that how to solve those problem. Reason for increasing the problems in monetary policies. How monetary policy committee members are selected.
This document summarizes the key aspects of monetary policy in India. It outlines the objectives of monetary policy as promoting economic growth, stability, and exchange rate stability. It describes the various tools used by the Reserve Bank of India (RBI) including repo rate, reverse repo rate, cash reserve ratio, and open market operations. It provides an overview of monetary policy approaches in recent years from 2019-2022, including rate cuts, lending schemes, and government security purchase programs. It analyzes how policy tools like repo rate and cash reserve ratio are used to achieve the objectives of growth and stability.
The document discusses various economic policies and tools used by governments and central banks, with a focus on India. It describes monetary policy as aiming to promote economic growth while maintaining stability. The major objectives of monetary policy in India are outlined as promoting capital formation, regulating bank credit, encouraging monetization, achieving growth with stability, and maintaining balance of payments equilibrium. Tools of monetary policy discussed include bank rate policy, open market operations, cash reserve ratios, and qualitative credit controls.
Mr. Tohru Sasaki, Managing Director and Head of Japan Rates and FX Research, JP Morgan was one of the keynote speakers at the Asia Business Forum, organised by London Business School's Asia Club, on 27 April 2013. He spoke about the economic policies advocated by Japan's Prime Minister and the implication that they have to the Asian economy.
Find out more about the Asia Club:
Website: https://clubs.london.edu/asiaclub
Facebook: https://www.facebook.com/LBS.AsiaClub
Twitter: https://twitter.com/LBSAsiaClub
I’m a young Pakistani Blogger, Academic Writer, Freelancer, Quaidian & MPhil Scholar, Quote Lover, Co-Founder at Essar Student Fund & Blueprism Academia, belonging from Mehdiabad, Skardu, Gilgit Baltistan, Pakistan.
I am an academic writer & freelancer! I can work on Research Paper, Thesis Writing, Academic Research, Research Project, Proposals, Assignments, Business Plans, and Case study research.
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Management Sciences, Business Management, Marketing, HRM, Banking, Business Marketing, Corporate Finance, International Business Management
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The document is a report from the Expert Committee to Revise and Strengthen the Monetary Policy Framework in India. It discusses the changing global monetary policy environment and the need to review India's monetary policy framework. The committee was appointed in September 2013 by the Governor of the Reserve Bank of India to recommend ways to revise and strengthen India's monetary policy framework to make it more transparent and predictable. The committee comprised both internal and external experts in monetary economics.
The document summarizes the key aspects of monetary policy in India. It discusses how monetary policy is announced twice a year by the Reserve Bank of India to influence money supply, interest rates, inflation and employment. The objectives of monetary policy are sustained economic growth, full employment and price stability. The policy impacts individuals through interest rates, domestic industries like exporters through export refinancing rates, and aims to maintain a balance between jobs, wages and output in the long run.
This document summarizes monetary and fiscal policies in India. It defines monetary policy as the Reserve Bank of India's use of tools to regulate money supply, credit availability, and interest rates. The objectives of monetary policy are maintaining price stability, adequate credit flow, economic growth, and full employment. Tools include bank rates, cash reserve ratios, open market operations, and credit controls. Fiscal policy involves government revenue and spending and is used to address recession or inflation. The objectives and tools of India's monetary and fiscal policies are discussed.
About Monetary policy review committee role, function, issues, challenges and way that how to solve those problem. Reason for increasing the problems in monetary policies. How monetary policy committee members are selected.
This document summarizes the key aspects of monetary policy in India. It outlines the objectives of monetary policy as promoting economic growth, stability, and exchange rate stability. It describes the various tools used by the Reserve Bank of India (RBI) including repo rate, reverse repo rate, cash reserve ratio, and open market operations. It provides an overview of monetary policy approaches in recent years from 2019-2022, including rate cuts, lending schemes, and government security purchase programs. It analyzes how policy tools like repo rate and cash reserve ratio are used to achieve the objectives of growth and stability.
The document discusses various economic policies and tools used by governments and central banks, with a focus on India. It describes monetary policy as aiming to promote economic growth while maintaining stability. The major objectives of monetary policy in India are outlined as promoting capital formation, regulating bank credit, encouraging monetization, achieving growth with stability, and maintaining balance of payments equilibrium. Tools of monetary policy discussed include bank rate policy, open market operations, cash reserve ratios, and qualitative credit controls.
Mr. Tohru Sasaki, Managing Director and Head of Japan Rates and FX Research, JP Morgan was one of the keynote speakers at the Asia Business Forum, organised by London Business School's Asia Club, on 27 April 2013. He spoke about the economic policies advocated by Japan's Prime Minister and the implication that they have to the Asian economy.
Find out more about the Asia Club:
Website: https://clubs.london.edu/asiaclub
Facebook: https://www.facebook.com/LBS.AsiaClub
Twitter: https://twitter.com/LBSAsiaClub
I’m a young Pakistani Blogger, Academic Writer, Freelancer, Quaidian & MPhil Scholar, Quote Lover, Co-Founder at Essar Student Fund & Blueprism Academia, belonging from Mehdiabad, Skardu, Gilgit Baltistan, Pakistan.
I am an academic writer & freelancer! I can work on Research Paper, Thesis Writing, Academic Research, Research Project, Proposals, Assignments, Business Plans, and Case study research.
Expertise:
Management Sciences, Business Management, Marketing, HRM, Banking, Business Marketing, Corporate Finance, International Business Management
For Order Online:
Whatsapp: +923452502478
Portfolio Link: https://blueprismacademia.wordpress.com/
Email: arguni.hasnain@gmail.com
Follow Me:
Linkedin: arguni_hasnain
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Facebook: arguni.hasnain
This document summarizes a study examining the impact of monetary policy on economic growth in Pakistan from 1991 to 2011. It finds that inflation rate, exchange rate, and external reserves are significant monetary policy instruments that influence growth. It recommends establishing primary and secondary government bond markets to increase monetary policy efficiency and reduce reliance on the central bank. The document provides context on monetary policy objectives in Pakistan and reviews literature on the relationship between monetary policy and economic growth.
The document summarizes monetary policy in India. It discusses how the Reserve Bank of India (RBI) uses various monetary policy tools like open market operations, cash reserve ratio, statutory liquidity ratio, bank rate, repo rate, and reverse repo rate to control money supply and maintain price stability. It notes that RBI recently cut the repo rate by 25 basis points to 7.75% due to falling inflation. The rate cut led to gains in the stock market and currency. Further cuts are expected pending the government's budget and stance on fiscal consolidation.
This document is a presentation on monetary policy in Bangladesh by Group 16. It begins with introductions of the group members. The presentation covers topics such as the definition of monetary policy, the tools and transmission mechanisms of monetary policy, impacts of monetary policy on inflation and capital markets, Bangladesh Bank's monetary policy stances and challenges to monetary policy in Bangladesh. The presentation provides an overview of key concepts in monetary policy as well as analysis of monetary policies implemented in Bangladesh.
Consequences of Abenomics on the Economy and Financial Markets, Ryutaro Kono,...Asia Matters
Ryutaro Kono, Chief Economist, BNP Paribas speaks at Asia Matters' Fifth EU Asia Top Economist Round Table in Japan, looking at the consequences of Abenomics:
Why is private consumption slow in recovering?
Is weak aggregate demand the reason economic growth does not accelerate?
Has the trend growth rate dropped into negative territory?
Why are exports still slow in reviving despite the yen’s weak tone?
Despite the advantages posed by the yen’s marked depreciation in real terms, why don’t manufacturers beef up domestic production capacity?
Will inflation accelerate?
Does Japan have any domestic savings left to finance its net domestic investment?
Can financial repression be avoided?
Can a hard landing be avoided?
The document summarizes Bangladesh's monetary policy between 2011-2015. Key points include:
- The central bank (Bangladesh Bank) used both expansionary and restrictive monetary policies by increasing or decreasing interest rates, cash reserve ratios, and repo/reverse repo rates to balance inflation, growth, and strengthening the economy.
- Between 2011-2012, policies aimed to lower inflation and support growth. In 2013, an expansionary policy pursued growth while aiming to lower inflation to 7%. 2014 policies initially restricted money supply to control rising food prices.
- In 2015, policies focused on moderate inflation, unemployment reduction, inclusive growth, and increasing domestic lending through digital technology and lowering costs of funds for projects. Inflation
Monetary policy regulates the level of money in an economy to achieve objectives like economic growth, full employment, price stability, and equitable flow of credit. It uses quantitative measures like bank rates, open market operations, cash reserve ratios, and statutory liquidity ratios. It also uses qualitative measures like marginal rates and rationing of credit. Monetary policy can be contractionary/tight to restrict money supply or expansionary/easy to increase money supply. The conclusion discusses improving forecasting capacity, understanding transmission channels, and increasing transparency of the policy framework.
This document provides an overview of Abenomics, Japan's economic policy under Prime Minister Shinzo Abe. It discusses the three arrows of Abenomics: 1) aggressive monetary easing by the Bank of Japan, 2) flexible fiscal policy, and 3) a growth strategy to increase private investment. The document analyzes the effects of Abenomics so far, including yen depreciation and declining unemployment. It also examines the future prospects of Abenomics, particularly whether its goals of 2% inflation and higher growth can be achieved through continued monetary easing, fiscal stimulus, and regulatory reforms.
This document provides an overview of economic policy, specifically monetary and fiscal policy. It defines economic policy as actions taken by governments and central banks to manage the economy. Fiscal policy involves tax and government spending decisions made by governments to influence economic growth, employment, and prices. Monetary policy involves interest rates and money supply management by central banks, primarily using tools like repo rates, cash reserve ratios, and open market operations. Both policies aim to expand or contract the economy and money supply as needed.
The Reserve Bank of India (RBI) controls monetary policy in India with the objectives of maintaining price stability and promoting economic growth. The RBI uses various tools to regulate the supply of money in the economy, including open market operations, cash reserve ratios, statutory liquidity ratios, bank rate policy, credit ceilings, and moral suasion. Major operations involve buying and selling government securities to contract or increase credit flow, requiring banks to hold certain reserves with the RBI, and maintaining repo and reverse repo rates to influence bank lending and borrowing rates. The overall goal of India's monetary policy is to achieve balanced economic development while restraining inflation.
MONETARY POLICY OF BANGLADESH
Background of the study:
Monetary police in Bangladesh.
Objective of the study.
Literature Review:
Monetary policy of Bangladesh.
Recommendation
Conclusion
Importance of the study.
Objective of monetary policy in Bangladesh.
tools of Monetary policy.
Monetary policy of India: Tug of War between Inflation Control and Growth Abhisek Khatua
The document discusses India's monetary policy and the tension between controlling inflation and promoting economic growth. It provides an overview of monetary policy tools used by the Reserve Bank of India such as interest rates, reserve requirements, open market operations, and credit controls. The monetary policy aims to balance objectives of price stability, growth, and employment while maintaining financial stability. Recently the RBI lowered its repo rate by 0.25% to 6.5% to boost growth, while keeping inflation under control. However, the central government often pushes for lower interest rates to increase growth, creating tensions with RBI's inflation-targeting approach.
The document summarizes monetary policy, which is carried out by central banks to control money supply and promote economic growth and stability. The main objectives of monetary policy are price stability, economic growth, and stable exchange rates. Central banks use tools like interest rates, reserve requirements, and open market operations to implement expansionary or contractionary monetary policy depending on economic conditions. The document then discusses monetary policy specifics in Pakistan, including interest rate trends over the past 15 years and recent policy decisions by the State Bank of Pakistan.
Money Supply and its Impact on Inflation and Interest Rate: A case study of I...Gokul K Prasad
The document is a project report on analyzing the relationship between money supply, inflation, and interest rates in India from 2003-2004 to 2013-2014. It begins with an introduction to the Indian economy throughout history and currently. It then discusses money supply in India and the various measures used by the Reserve Bank of India to control money supply. Next, it covers inflation in India, how it is measured, and the relationship between money supply and inflation. Finally, it discusses interest rates in India, how they are determined, and the relationship between interest rates, money supply, and other economic factors. The report provides historical data and analysis on these economic indicators in India over the given time period.
The Reserve Bank of India's Monetary Policy aims to ensure price stability through controlling money supply, interest rates, and inflation. It is announced annually and reviewed quarterly. The policy impacts banking, financial institutions, and markets through changes to interest rates and monetary measures. Its goals are maintaining price stability while ensuring credit flows to support growth, employment, and incomes. It differs from fiscal policy which uses government spending and taxes to influence output and prices.
This document discusses a study examining the impact of monetary policy on the financial performance of banks in Pakistan from 2007-2011. It uses interest rates set by the State Bank of Pakistan as a measure of monetary policy. The study finds that higher interest rates, representing a tighter monetary policy, have a significant negative relationship with banks' financial performance as measured by their return on assets and return on equity. The document provides background on monetary policy, its tools of expanding or contracting the money supply, and how interest rates can affect bank risk-taking and performance. It also reviews prior literature finding that higher capitalized banks may increase risk-taking less in response to lower rates than other banks.
The document provides information about the Reserve Bank of India (RBI), which is India's central bank. It was established in 1934 and frames monetary policy. Some key points:
- RBI is among the top 10 most influential central banks globally based on GDP and other economic factors.
- It aims to maintain price stability and promote growth. The RBI Governor and committee determine the repo rate to influence monetary conditions.
- Tools include repo rate, CRR, OMOs and more to target inflation and ensure adequate credit in the economy.
This document provides an overview of monetary policy in India. It discusses the objectives of monetary policy as rapid economic growth, price stability, exchange rate stability, balance of payments equilibrium, and full employment. It describes various monetary measures used by the Reserve Bank of India, including bank rate, cash reserve ratio, statutory liquidity ratio, open market operations, repo rate, and reverse repo rate. Selective credit control measures and limitations of monetary policy are also summarized.
Monetary policy refers to actions taken by central banks to control money supply and influence interest rates in order to achieve objectives like price stability and economic growth. There are two types: expansionary monetary policy stimulates the economy by increasing money supply and lowering interest rates, while contractionary policy decreases money supply to reduce inflation by making money less accessible. Central banks use instruments like adjusting interest rates, buying and selling government bonds, and changing bank reserve requirements to implement monetary policy and meet its objectives of full employment, economic growth, price stability, and more.
The Reserve Bank of India announces its Monetary Policy twice a year to maintain price stability in the economy. The policy influences factors like money supply, interest rates, and inflation. It also sets guidelines for banks and financial institutions. The objectives are to maintain price stability and ensure adequate credit flows to productive sectors. Instruments used include bank rates, cash reserve ratios, open market operations, and controlling money supply.
This document presents a macroeconomic model focused on banking and money creation. It models how private banks create money through lending and how the central bank supports this process. The model shows the macroeconomic effects of credit creation and private debt accumulation. It demonstrates how shocks like increased "animal spirits" or reduced bank confidence can impact growth. The authors see potential to use this framework to study issues like financing the green economy, quantitative easing, and monetary/fiscal policy transmission. Further work is needed to endogenize parameters and model other sectors like households and government debt.
The RBI announced its first bi-monthly monetary policy statement for 2016-17. It reduced the repo rate by 25 basis points to 6.5% and the CRR requirement for banks from 95% to 90%. The overall monetary policy stance remains accommodative with the goal of better transmission of interest rates and reducing liquidity deficit. The RBI expects CPI inflation to remain around 5% for FY17 and does not see inflation as a threat currently.
This document summarizes a study examining the impact of monetary policy on economic growth in Pakistan from 1991 to 2011. It finds that inflation rate, exchange rate, and external reserves are significant monetary policy instruments that influence growth. It recommends establishing primary and secondary government bond markets to increase monetary policy efficiency and reduce reliance on the central bank. The document provides context on monetary policy objectives in Pakistan and reviews literature on the relationship between monetary policy and economic growth.
The document summarizes monetary policy in India. It discusses how the Reserve Bank of India (RBI) uses various monetary policy tools like open market operations, cash reserve ratio, statutory liquidity ratio, bank rate, repo rate, and reverse repo rate to control money supply and maintain price stability. It notes that RBI recently cut the repo rate by 25 basis points to 7.75% due to falling inflation. The rate cut led to gains in the stock market and currency. Further cuts are expected pending the government's budget and stance on fiscal consolidation.
This document is a presentation on monetary policy in Bangladesh by Group 16. It begins with introductions of the group members. The presentation covers topics such as the definition of monetary policy, the tools and transmission mechanisms of monetary policy, impacts of monetary policy on inflation and capital markets, Bangladesh Bank's monetary policy stances and challenges to monetary policy in Bangladesh. The presentation provides an overview of key concepts in monetary policy as well as analysis of monetary policies implemented in Bangladesh.
Consequences of Abenomics on the Economy and Financial Markets, Ryutaro Kono,...Asia Matters
Ryutaro Kono, Chief Economist, BNP Paribas speaks at Asia Matters' Fifth EU Asia Top Economist Round Table in Japan, looking at the consequences of Abenomics:
Why is private consumption slow in recovering?
Is weak aggregate demand the reason economic growth does not accelerate?
Has the trend growth rate dropped into negative territory?
Why are exports still slow in reviving despite the yen’s weak tone?
Despite the advantages posed by the yen’s marked depreciation in real terms, why don’t manufacturers beef up domestic production capacity?
Will inflation accelerate?
Does Japan have any domestic savings left to finance its net domestic investment?
Can financial repression be avoided?
Can a hard landing be avoided?
The document summarizes Bangladesh's monetary policy between 2011-2015. Key points include:
- The central bank (Bangladesh Bank) used both expansionary and restrictive monetary policies by increasing or decreasing interest rates, cash reserve ratios, and repo/reverse repo rates to balance inflation, growth, and strengthening the economy.
- Between 2011-2012, policies aimed to lower inflation and support growth. In 2013, an expansionary policy pursued growth while aiming to lower inflation to 7%. 2014 policies initially restricted money supply to control rising food prices.
- In 2015, policies focused on moderate inflation, unemployment reduction, inclusive growth, and increasing domestic lending through digital technology and lowering costs of funds for projects. Inflation
Monetary policy regulates the level of money in an economy to achieve objectives like economic growth, full employment, price stability, and equitable flow of credit. It uses quantitative measures like bank rates, open market operations, cash reserve ratios, and statutory liquidity ratios. It also uses qualitative measures like marginal rates and rationing of credit. Monetary policy can be contractionary/tight to restrict money supply or expansionary/easy to increase money supply. The conclusion discusses improving forecasting capacity, understanding transmission channels, and increasing transparency of the policy framework.
This document provides an overview of Abenomics, Japan's economic policy under Prime Minister Shinzo Abe. It discusses the three arrows of Abenomics: 1) aggressive monetary easing by the Bank of Japan, 2) flexible fiscal policy, and 3) a growth strategy to increase private investment. The document analyzes the effects of Abenomics so far, including yen depreciation and declining unemployment. It also examines the future prospects of Abenomics, particularly whether its goals of 2% inflation and higher growth can be achieved through continued monetary easing, fiscal stimulus, and regulatory reforms.
This document provides an overview of economic policy, specifically monetary and fiscal policy. It defines economic policy as actions taken by governments and central banks to manage the economy. Fiscal policy involves tax and government spending decisions made by governments to influence economic growth, employment, and prices. Monetary policy involves interest rates and money supply management by central banks, primarily using tools like repo rates, cash reserve ratios, and open market operations. Both policies aim to expand or contract the economy and money supply as needed.
The Reserve Bank of India (RBI) controls monetary policy in India with the objectives of maintaining price stability and promoting economic growth. The RBI uses various tools to regulate the supply of money in the economy, including open market operations, cash reserve ratios, statutory liquidity ratios, bank rate policy, credit ceilings, and moral suasion. Major operations involve buying and selling government securities to contract or increase credit flow, requiring banks to hold certain reserves with the RBI, and maintaining repo and reverse repo rates to influence bank lending and borrowing rates. The overall goal of India's monetary policy is to achieve balanced economic development while restraining inflation.
MONETARY POLICY OF BANGLADESH
Background of the study:
Monetary police in Bangladesh.
Objective of the study.
Literature Review:
Monetary policy of Bangladesh.
Recommendation
Conclusion
Importance of the study.
Objective of monetary policy in Bangladesh.
tools of Monetary policy.
Monetary policy of India: Tug of War between Inflation Control and Growth Abhisek Khatua
The document discusses India's monetary policy and the tension between controlling inflation and promoting economic growth. It provides an overview of monetary policy tools used by the Reserve Bank of India such as interest rates, reserve requirements, open market operations, and credit controls. The monetary policy aims to balance objectives of price stability, growth, and employment while maintaining financial stability. Recently the RBI lowered its repo rate by 0.25% to 6.5% to boost growth, while keeping inflation under control. However, the central government often pushes for lower interest rates to increase growth, creating tensions with RBI's inflation-targeting approach.
The document summarizes monetary policy, which is carried out by central banks to control money supply and promote economic growth and stability. The main objectives of monetary policy are price stability, economic growth, and stable exchange rates. Central banks use tools like interest rates, reserve requirements, and open market operations to implement expansionary or contractionary monetary policy depending on economic conditions. The document then discusses monetary policy specifics in Pakistan, including interest rate trends over the past 15 years and recent policy decisions by the State Bank of Pakistan.
Money Supply and its Impact on Inflation and Interest Rate: A case study of I...Gokul K Prasad
The document is a project report on analyzing the relationship between money supply, inflation, and interest rates in India from 2003-2004 to 2013-2014. It begins with an introduction to the Indian economy throughout history and currently. It then discusses money supply in India and the various measures used by the Reserve Bank of India to control money supply. Next, it covers inflation in India, how it is measured, and the relationship between money supply and inflation. Finally, it discusses interest rates in India, how they are determined, and the relationship between interest rates, money supply, and other economic factors. The report provides historical data and analysis on these economic indicators in India over the given time period.
The Reserve Bank of India's Monetary Policy aims to ensure price stability through controlling money supply, interest rates, and inflation. It is announced annually and reviewed quarterly. The policy impacts banking, financial institutions, and markets through changes to interest rates and monetary measures. Its goals are maintaining price stability while ensuring credit flows to support growth, employment, and incomes. It differs from fiscal policy which uses government spending and taxes to influence output and prices.
This document discusses a study examining the impact of monetary policy on the financial performance of banks in Pakistan from 2007-2011. It uses interest rates set by the State Bank of Pakistan as a measure of monetary policy. The study finds that higher interest rates, representing a tighter monetary policy, have a significant negative relationship with banks' financial performance as measured by their return on assets and return on equity. The document provides background on monetary policy, its tools of expanding or contracting the money supply, and how interest rates can affect bank risk-taking and performance. It also reviews prior literature finding that higher capitalized banks may increase risk-taking less in response to lower rates than other banks.
The document provides information about the Reserve Bank of India (RBI), which is India's central bank. It was established in 1934 and frames monetary policy. Some key points:
- RBI is among the top 10 most influential central banks globally based on GDP and other economic factors.
- It aims to maintain price stability and promote growth. The RBI Governor and committee determine the repo rate to influence monetary conditions.
- Tools include repo rate, CRR, OMOs and more to target inflation and ensure adequate credit in the economy.
This document provides an overview of monetary policy in India. It discusses the objectives of monetary policy as rapid economic growth, price stability, exchange rate stability, balance of payments equilibrium, and full employment. It describes various monetary measures used by the Reserve Bank of India, including bank rate, cash reserve ratio, statutory liquidity ratio, open market operations, repo rate, and reverse repo rate. Selective credit control measures and limitations of monetary policy are also summarized.
Monetary policy refers to actions taken by central banks to control money supply and influence interest rates in order to achieve objectives like price stability and economic growth. There are two types: expansionary monetary policy stimulates the economy by increasing money supply and lowering interest rates, while contractionary policy decreases money supply to reduce inflation by making money less accessible. Central banks use instruments like adjusting interest rates, buying and selling government bonds, and changing bank reserve requirements to implement monetary policy and meet its objectives of full employment, economic growth, price stability, and more.
The Reserve Bank of India announces its Monetary Policy twice a year to maintain price stability in the economy. The policy influences factors like money supply, interest rates, and inflation. It also sets guidelines for banks and financial institutions. The objectives are to maintain price stability and ensure adequate credit flows to productive sectors. Instruments used include bank rates, cash reserve ratios, open market operations, and controlling money supply.
This document presents a macroeconomic model focused on banking and money creation. It models how private banks create money through lending and how the central bank supports this process. The model shows the macroeconomic effects of credit creation and private debt accumulation. It demonstrates how shocks like increased "animal spirits" or reduced bank confidence can impact growth. The authors see potential to use this framework to study issues like financing the green economy, quantitative easing, and monetary/fiscal policy transmission. Further work is needed to endogenize parameters and model other sectors like households and government debt.
The RBI announced its first bi-monthly monetary policy statement for 2016-17. It reduced the repo rate by 25 basis points to 6.5% and the CRR requirement for banks from 95% to 90%. The overall monetary policy stance remains accommodative with the goal of better transmission of interest rates and reducing liquidity deficit. The RBI expects CPI inflation to remain around 5% for FY17 and does not see inflation as a threat currently.
Monetary Policy and Banking Reforms of India (BUSINESS ENVIRONMENT)Priyanka Saluja
This document provides an overview of monetary and banking reforms in India. It discusses the role and objectives of monetary policy set by the Reserve Bank of India, including various instruments and factors that influence policy. It also outlines the history and phases of development of the banking sector in India, from the early evolutionary phase to the recent consolidations phase. Major reforms and recommendations, like nationalization of banks and the Narsimhan Committee, are also mentioned.
The pre-1990 Indian economy was characterized by a strong emphasis on protectionism, import substitution, and central planning. India's share of world income declined from 22.3% in 1700 to 3.8% by 1952 due to British colonial rule. After independence, the government prioritized heavy industry and public sector growth through five-year plans but saw limited success. Reforms began in the 1990s with liberalization of trade and investment policies to address fiscal and balance of payments crises, opening India's economy to globalization. Major reforms included trade liberalization, privatization, tax changes, and incentives for foreign investment and exports.
Indian economy before independence and after independencedineshm9565
1) The document discusses the growth story of the Indian economy before and after independence. It describes how the economy was underdeveloped and based on agriculture before independence, and struggled with poverty, unemployment and low capital formation.
2) It then outlines India's economic growth under British colonial rule, how the economy was deindustrialized and drained of wealth. After independence, India adopted a socialist model inspired by the Soviet Union with large public sectors.
3) More recently, India has grown rapidly since the 1980s, especially after economic reforms in 1991, becoming one of the fastest growing major economies in the world. The economy has diversified and liberalized, though poverty and development challenges remain.
This chapter discusses how to determine national income and its fluctuations. It introduces the concepts of aggregate expenditure (AE), equilibrium income, the consumption function, savings function, investment, and the multiplier. AE is the total planned spending in the economy. Equilibrium occurs when AE equals national income (Y). The chapter shows that an increase in investment (I) or autonomous consumption will increase AE and equilibrium Y through the multiplier effect. It also discusses the "paradox of thrift" where an increase in savings can reduce income.
The document provides an overview of the Reserve Bank of India (RBI), including its history, functions, and monetary policy tools. It establishes that RBI was established in 1935 as India's central bank and was nationalized in 1949. Its key functions include acting as a bank of issue, banker to the government, maintaining foreign exchange reserves, and using various quantitative and qualitative tools to regulate money supply and credit in the economy. These tools include bank rate, cash reserve ratio, statutory liquidity ratio, open market operations, and selective credit controls. The document also briefly outlines RBI's monetary policies and targets from 2005-2006 and the current monetary policy.
This document discusses the concept of the multiplier effect in economics. It provides background on how the multiplier was originally developed by F.A. Kahn and later refined by Keynes. It then defines Kahn's employment multiplier and Keynes' investment/income multiplier. The document goes on to provide the formula for calculating the multiplier and discusses how it is affected by the marginal propensity to consume. It also provides an example of how the multiplier effect causes total income to increase through successive rounds of spending.
This document provides an overview of Keynesian theory of income determination. It discusses some key concepts:
1) According to Keynes, the equilibrium level of national income and employment is determined by the interaction of aggregate demand (C+I) and aggregate supply (C+S). This equilibrium is called the effective demand point.
2) Effective demand represents the total spending in the economy that matches aggregate supply. It is the level of income and employment where there is no tendency to increase or decrease production.
3) The effective demand point may be below full employment, indicating underemployment. Government spending can increase aggregate demand and move the economy to a new equilibrium with higher income and full employment.
Impact of Federal Reserve's Decision on IndiaBurning Desires
Why India was indifferent? Burning Desires explains why India was Indifferent from Federal Reserve’s Decision as to whether raise or hold the Interest Rate
India was Indifferent means; The Indian Economy was under win-win situation irrespective of Federal Reserve’s decision, Why of the same is the main theme of this article.
The document discusses why India was indifferent to the US Federal Reserve's decision about whether to raise or hold interest rates. It explains that the Indian economy was in a favorable position regardless of the Fed's choice. India had taken steps to control its currency and increase foreign reserves, and its strong fundamentals like improving GDP growth meant any market corrections from capital outflows would be less severe than in the past. The RBI and Fed chairs faced similar situations regarding choosing not to cut rates due to transitory decreases in inflation. Overall, India was well positioned to benefit from higher US rates through capital inflows or see only minor impacts from any outflows.
The document discusses the recession of 2008-2009 and its impacts. It provides background on what constitutes a recession and describes effects on the Indian insurance sector like reduced sales and policies due to factors such as credit crunches, decreased savings, and rising unemployment. It also outlines government fiscal and monetary policies to stimulate the economy through measures like tax cuts, increased spending, lowered CRR, repo, and reverse repo rates.
The document discusses the recession of 2008-2009 and its impacts on the Indian insurance sector. It notes that recessions can lead to credit crunches, reduced savings, and unemployment, all of which negatively impact insurance sales. Data is presented showing declines in investments, savings rates, sales, ULIP policies, and new insurance policies during the recession. The government implemented fiscal and monetary policies like tax cuts, increased spending, lowering reserve requirements and interest rates to stimulate the economy and help recovery.
This document analyzes India's economic slowdown in the 2010s. It argues that India is facing a "Four Balance Sheet" challenge involving banks, infrastructure companies, non-bank financial companies, and real estate companies. The slowdown can be traced back to structural issues from the post-Global Financial Crisis period compounding recent cyclical factors. Specifically, investment and exports slowed due to balance sheet problems in infrastructure, while temporary boosts to growth from lower oil prices and credit growth have now faded. Addressing the underlying balance sheet issues across these four sectors is necessary to durably revive economic growth.
1) The document discusses topics related to inflation targeting including what it is, why it is controversial, cross-country experiences, how to implement it, and recommendations for India.
2) Inflation targeting is a monetary policy strategy used by central banks to maintain inflation at a specific target level or range through interest rate changes and other monetary actions. It aims to improve transparency but may prioritize inflation over other goals like growth.
3) Implementing inflation targeting requires conditions like central bank independence, developed financial markets, and a flexible exchange rate - conditions many emerging economies like India currently lack.
MAJOR EVENTS THAT AFFECTED THE STOCK MARKET.pdfSRIKANTA NAYAK
Trading just on company-specific information might not be sufficient for a market participant. Understanding the events that affect the markets is also crucial. The performance of stocks and markets in general is significantly influenced by a variety of external factors, including economic and/or non-economic events.
RELATED: - WHAT ARE CORPORATE ACTIONS AND HOW DO THEY AFFECT STOCK PRICES? - theindusa.com
HOW TO BECOME A DISCIPLINED TRADER? - BEST SOLUTION. - theindusa.com
Monetary Policy
The Reserve Bank of India (RBI) uses monetary policy as a tool to manage the money supply through regulating interest rates. They adjust interest rates to do this. India's central bank is called the RBI. The central bank of every nation on earth is in charge of deciding on interest rates.
The RBI must achieve a balance between growth and inflation while determining interest rates. In a nutshell, if interest rates are high, borrowing costs are also high (especially for businesses). Corporate expansion is impossible if borrowing is difficult. If businesses don't expand, the economy sputters.
On the other hand, borrowing is simpler when interest rates are low. This results in both businesses and consumers having more money. Increased spending results from having more money, thus retailers tend to raise prices, which causes inflation.
The RBI must take into account all the variables and should cautiously fix a few key rates in order to achieve balance. An economic upheaval can result from any imbalance in these rates.
The following are the important RBI rates that you should monitor:
Repo Rate - Banks can borrow money from the RBI whenever they need to. The repo rate is the interest rate at which the RBI loans money to other banks. A high repo rate indicates a high cost of borrowing, which results in a sluggish expansion of the economy. In India, the repo rate is at 8%. Markets dislike the RBI's decision to raise the repo rate.
Reverse repo rate - The rate at which the RBI borrows money from banks is known as the reverse repo rate. Banks are happier to lend money to RBI than to a business since they are confident that RBI won't default when they do so. However, the amount of money in the banking system declines when banks decide to lend money to the RBI rather than the corporate entity. Reverse repo rate increases tighten the money supply, which is bad for the economy. The current reverse repo rate is 7%.
Cash reserve ratio (CRR) – Every bank is mandatorily required to maintain funds with RBI. The amount that they maintain is dependent on the CRR. If CRR increases then more money is removed from the system, which is again not good for the economy.
The RBI meets every three months to discuss rates. The market keeps an eye out for this important occasion. Interest rate-sensitive stocks from a variety of industries, including banks, automobiles, housing finance, real estate, metals, and others, would be among the first to respond to rate changes.
The document provides an overview of India's flexible inflation targeting monetary policy framework and recent actions taken by the Reserve Bank of India (RBI). It discusses the evolution of the flexible inflation targeting framework worldwide and its key aspects introduced in India in 2016. It also summarizes the RBI's main monetary policy tools and recent rate hikes in May and June 2022 to withdraw accommodation and curb inflation. Additionally, it briefly reviews other central banks' monetary policy tools and rates amid the current global hiking cycle.
basic presentation on MONETARY POLICY of IndiaVinit Varma
Inflation is a rise in the general price level of goods and services over time which causes money to lose value. There are different stages and types of inflation. Inflation can be caused by increases in demand, costs, money supply, wages, and other factors. While inflation has some positive effects like debt relief, it generally has negative effects on consumers, savers, fixed income groups, and the economy. The Reserve Bank of India uses various monetary policy tools like adjusting policy rates, cash reserve and statutory liquidity ratios, open market operations, and other tools to control inflation and achieve monetary policy objectives of price stability and growth.
The document discusses monetary policy and fiscal policy. It defines monetary policy as related to the supply and cost of money in an economy to achieve objectives like economic growth and price stability. The central bank controls money supply using tools like bank rates, open market operations, and reserve ratios. Fiscal policy relates to government revenue and spending through taxation, expenditures, and borrowing. Both policies aim to achieve development through mobilizing resources, maintaining stability, and stimulating employment and growth.
The Monetary Policy is announced annually by the Reserve Bank of India to ensure price stability in the economy. It involves controlling money supply, interest rates, and inflation. The RBI also announces regulations for banks, financial institutions, and other entities it governs. The Monetary Policy differs from the Fiscal Policy in that it aims to impact the economy by adjusting money supply and interest rates, while the Fiscal Policy uses government spending and taxes. The objectives of the Monetary Policy are maintaining price stability and ensuring adequate credit to productive sectors of the economy.
The failure of the Reserve Bank to control inflation is due to the government setting aside its work and mixing tunes with the government. The institutional damage caused by this is detrimental to the common man in the future.When the rate of inflation is low, the task of central banks is easier, as it is possible to keep the country's borrowers satisfied by providing large loans at low interest rates. The real impetus for these banks is in times of inflation, as they are forced to make unpleasant decisions. Let's see how the Reserve Bank is failing this exam till today.Let's start with an analysis of the statistics at hand. The current rise in food and fuel prices is only a result of the changing global economic situation, especially the war waged by Russia against Ukraine. But long before the war began, inflation in India had begun. The Reserve Bank of India (RBI) has set a target of keeping monthly inflation at around 4%. Since then, the rate has been going up to four per cent. This means that for almost three years, we have failed to control inflation. Despite the RBI's target of not allowing monthly inflation to go beyond 6 per cent, the rate has gone up by six per cent for 18 months (about 56 per cent of the time) out of the 32 months of the period.Despite all this, the RBI has not commented for a long time. The graph of the US Federal Reserve and the European Central Bank has been declining for almost a year, but the graph of the Reserve Bank has been declining for a longer period of time. Even now, the bank seems to be in the mood to adapt to the situation, not to take a hard line against inflation.
To enable the RBI to control inflation, the government has enacted legislation to control inflation. But why did it happen even after that? The simple answer is that the RBI made a mistake. She failed to understand the situation properly. Although indirect inflation has consistently hovered around six per cent, it has been attributed to temporary factors from time to time.This underscores a fundamental question, which is why these mistakes have never been corrected or challenged. In fact, the measures taken to control inflation included a number of provisions to avoid errors in economic decisions. It is the responsibility of the Reserve Bank to ensure that inflation remains around four per cent. To review her predictions and the role she has played in policy It is the responsibility of the Credit Policy Committee to approve it. If the inflation rate stays above six per cent for three consecutive quarters, the RBI will have to give a public explanation. In the midst of all this, all three of these institutional security shields faded. Let's see how First of all, the rights of the Reserve Bank were ignored. Her main responsibility was to control inflation and to drive economic growth while it was under control. But the RBI took on three other responsibilities.
The document provides an overview of monetary and fiscal policy in India. It discusses the objectives and key instruments of monetary policy implemented by the Reserve Bank of India, including open market operations, cash reserve ratio, statutory liquidity ratio, and repo and reverse repo rates. It also covers inflation targeting and factors affecting monetary policy. For fiscal policy, it outlines the role of the central government budget in taxation and expenditure. It discusses fiscal deficit, changes in the 2013-14 budget to curb the deficit, and reviews fiscal and monetary policy challenges in India like high deficit, currency depreciation and lower growth.
The document discusses inflation in India, including its types, causes, measurement, and current trends. It provides details on key inflation indices like the wholesale price index and consumer price index. Recent inflation in India has fallen towards zero inflation due to several factors: a large drop in international crude oil prices, stagnant food prices, compressed demand from lower rural wages and spending, and tight monetary policy from the RBI. However, the document notes this decline may not be sustainable as the key drivers of falling prices are volatile and outside monetary policy control.
Monetary policy aims to control money supply and interest rates to maintain price stability and economic growth. In India, the Reserve Bank of India (RBI) announces monetary policy twice a year and uses various tools like reserve ratios, open market operations, and policy rates to regulate money supply, credit allocation, and aggregate demand in order to achieve objectives like promoting savings and investment, managing business cycles, and generating employment. The tools include quantitative methods that directly impact money supply as well as qualitative methods that target specific sectors.
Monetary policy aims to control money supply and interest rates to maintain price stability and economic growth. In India, the Reserve Bank of India (RBI) announces monetary policy twice a year and uses various tools like reserve ratios, open market operations, and policy rates to regulate money supply, credit allocation, and aggregate demand in order to promote savings and investment, control imports and exports, manage business cycles, and support development goals.
This document is an assignment analyzing China's economy based on various economic indicators. It discusses China's current strong but slowing economic growth and healthy overall economic state. Key indicators like GDP, GDP growth, inflation and investment rates are examined. The assignment recommends monitoring inflation, current accounts, investment and foreign investment to evaluate risks and opportunities for expanding business in China. China's economy is expanding but may be reaching its peak, so the company needs to prepare for a potential contraction.
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FEBRUARY 2ND, 2014
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[Economy] RBI Urjit Patel Committee: 4% CPI, Nominal Anchor, Multiple Indicator, Monetary Policy
Framework Reforms (Part 1 of 2)
Prologue
Monetary Policy: Where to focus?
#1: Focus on Exchange rate
#2: Focus on Multiple indicators
#3: focus on inflation
Nominal anchor (CPI) method: Benefits/Advantages of
Nominal anchor (CPI) method: Drawbacks/Limitations/Anti-arguments
Why Target inflation?
Nominal vs Real interest rate
Nominal Anchor (CPI): the 4% Target
Nominal Anchor CPI 4%: WHEN to reach?
Nominal Anchor CPI 4%: How to reach?
Hawkish trend: Why interest rates will rise?
Mock Questions
Prologue
This article won’t make much sense, unless you’re thorough with the concepts of monetary policy: its functions, tools and limitation.
So make sure you’ve read the previous article. click me.
Place: RBI’s Main Adda @Mumbai
Time: September 2013
Boss: Rajan has recently taken charge as the new governor of RBI. Immediately he setups three Committees:
Chairman
Occupation in
RBI
Bimal Jalan Retire Governor
Topic
Result
New Bank licenses
Work in progress.
Published report in January 2014.
Nachiket
Mor
Board member
Financial products/ Financial inclusion
Urjit Patel
Deputy Governor
Monetary policy framework: how to
strengthen it?
Discussed in earlier articles.
Published report in Jan’14. This is the topic of our
article.
Urjit Patel Committee: Basics
1. Formed by: RBI (and not finance ministry)
2. Official name: Expert Committee to Revise and Strengthen the Monetary Policy Framework
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3. Chairman: Dr. Urjit Patel, Dy. Governor of RBI
4. Eight Members: economics professors, finance experts etc. They’re not important for exams, because No high profile
members. [may be because Nachiket took away all the high profile members like Shikha Sharma of Axis bank, so Urjit bhai was
left with only chillar parties.]
Overall, Urjit Patel’s main recommendations can be summarized in just three lines:
1. @Rajan, you fight inflation. [Nominal anchor, 4% CPI and everything]
2. @Rajan, you fix accountability in your own gang. [form MPC Committee, decisions by voting etc.]
3. @Chindu, you give cover-fire to Rajan, while he is fighting inflation. [fiscal consolidation.]
Let’s start with first recommendation.
Urjit
My first recommendation is that RBI must target inflation only. Nothing else- don’t focus on increasing employment, don’t
focus on increasing growth, don’t focus on stabilizing rupee-dollar exchange rate. Just focus on one thing and one thing
only- Inflation.
Mohan But why focus on inflation only?
Urjit
Observe.
Monetary Policy: Where to focus?
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There are three main ways to frame monetary policy
1. Focus on Exchange Rate
2. Focus Multiple indicator (GDP, IIP, Exchange rate, inflation)
3. Focus on Inflation (started in 80s)
Let’s check the pros and cons of each strategy.
#1: Focus on Exchange rate
If RBI adopts this strategy/method to frame monetary policy then- what will happen?
Rajan will first decide an ideal “target” exchange rate say 1$=Rs.50.
Then he’ll try to amend monetary policy to control rupee supply in the market.
To put this in technically incorrect example: Imagine dollars are “apples”.
Prices of apple vs Rupee are decided by laws of supply and demand.
At present 1 apple sells for Rs.60. But Rajan wants to bring it 1 Apple=50 rupees. What should he do?
1. Rajan will tweak his monetary policy to reduce the supply of rupee in the market. Then, 1 apple will sell for Rs.50. (apple supply
is same but rupee supply is decreased.)
2. Alternatively, Rajan will open his own refrigerator (forex reserve), and put some apples (dollars) for sale. That’ll also bring down
prices of 1 apple =50 rupees. (because apple supply increased)
Advantages/Benefits of targeting Exchange rate?
1. Prices of imported goods are kept in check.
2. Prices of imported crude oil is kept in check. (so indirectly inflation is kept in check).
3. Since exchange rates are kept stable- both importers and exporters can decide their business expansion plans accurately.
(compared to a situation where exchange rate is volatile-say today $1=40 Rs. And tomorrow $1=60Rs. Then it is not good for
business decisions.)
4. Clarity. Transparency in Decision Making. Aam Juntaa can understand what RBI is trying to accomplish and whether Rajan is
succeeding or failing? (if they ever get free after watching cricket matches, Saas-Bahu serials and (un)reality shows.)
Disadvantages/limitations of targeting Exchange rate?
1. This method works well to control (imported) fuel inflation. But cannot control (local) food inflation.
1. Works well for a small countries. Because their population is small, they can even import food from India, China and just focus
on export competitiveness in electronics and consumer goods. e.g. Singapore, Taiwan etc.
2. But Doesn’t work for large countries like India, Mexico or Brazil. Our population is so large, we cannot sustain on imported
food. We must be self-reliant in food production.
3. Country becomes vulnerable to external shocks. Continuing the previous example of Apple vs Rupee
1. What if American RBI tightens their own monetary policy to control local American inflation (= US Feds follow a dear
money policy =dollar (apple) supply is reduced.)
2. Then Rajan’s statistical projections will go wrong. He’ll have to make new adjustments in Rupee vs Dollar (Apple) quantity
in Indian market.
4. Government is bogus, and causes high food inflation. Result= Real interest rates become negative, Juntaa will start investing more
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in gold=>Gold import increased=>payments have to be made in Dollar. This also creates imbalance in supply-demand of rupee
vs Dollars (Apples). Rajan will have hard time controlling this mess.
5. Country becomes vulnerable to Speculative attacks. e.g. Forex traders in Europe or China decide to hoard Apples (dollars) in
their refrigerator to create artificial shortage in market, so later then can sell their apples @higher rate. In such speculative attacks,
Rajan will have hard time controlling supply-demand of Rupee vs dollars. He cannot prosecute them under FERA/FEMA laws,
those traders live outside his jurisdiction.
6. Outdated: During WW1 era, most central banks used to follow this Exchange rate targeting strategy. But today, almost all banks
in developed countries, have shifted to inflation targeting strategy. Only few exceptions- like Singapore’s RBI – use this strategy.
Moving to next method/strategy
#2: Focus on Multiple indicators
At present, this is the strategy RBI uses for making monetary policy.
Under multiple indicator method, Rajan will first gather information about:
1. Index of industrial production (IIP), Consumer confidence
2. Professional forecasts (CRISIL, S&P, Moody, World Bank) about GDP, inflation, unemployment
3. Inflation data: WPI minus food, fuel.
Then, he will design the monetary policy (mainly repo rate), with following objectives/focuses:
1.
2.
3.
4.
Increase employment
Increase GDP
Stabilize inflation
Stabilize exchange rate
Sounds fair enough? Not really!
Multiple indicator method: Negative points/ Limitations
1. Multiple indictor method has no “nominal anchor”- no actual target. What exactly are you trying to accomplish? Bring down WPI
by 5%, raise GDP to 9%…..no such targets. Just bol-bachhan. Therefore ineffective.
2. Multiple indicator strategy worked well between 1998 and 2008. GDP was good and inflation was kept in check. But in recent
times, this strategy is no longer working- inflation has skyrocketed and GDP is falling day by day.
3. Since 2008, Consumer price index rose to double digits (i.e. 10% or more)
4. But RBI doesn’t focus on CPI. They only focus on WPI (minus food and fuel). Result?
a. WPI doesn’t track changes in the service sector related inflation (e.g. doctor, physiotherapist, IT, call center etc.)
b. Service sector contributes more than 60% of GDP. So, when monetary policy is designed without considering service
sector inflation=then it’ll be ineffective.
5. WPI commodity list has been revised in recent times- they added ice cream, oven, cricket ball, guitar and so on. Result?
a. RBI has to make new statistical calculation about each of such busines arenas- number of people employed in it, total bank
loans given, their contribution to GDP etc.
b. But when WPI commodity list is revised, RBI has to calculate new statistical projections= problem. Policy doesn’t give
effective result in the meantime.
6. Even if Rajan makes best policy, its Impact will be seen after a lag of 3-4 quarters (i.e. nine to twelve month). Why? We already
learned the limitations of Monetary policy in a developing country, the past article. Click me
7. Since this strategy doesn’t have a clear cut transparent targets, it becomes vulnerable to various pressure groups. For example
Pressure
group
informally forces Rajan to:
Chindu
Please increase SLR ratio. That way government is able to sell more of its securities to the banks and- arrange
cash from more schemes to increase employment- after all that’s what you want- increase employment!
Secondly, please increase the quota for women under Priority sector lending because Rahul baba has been
advocating “women empowerment” everywhere, including @Arnab Goswami’s interview.
Exporters/
IT
companies
Rajan Bhai, please tweak your monetary policy in such way that $1=becomes 1000 rupees, then we earn more
rupees while exporting goods n services abroad.
Importers
Please design your monetary policy in such way that $1 = Rs.1. then we’ve to spend less rupees while
importing stuff from abroad.
FICCI
Please decrease Priority sector lending, CRR and SLR that way more money is left for business loans for
corporate giants.
Bankers
Maai baap, please reduce PSL targets, SLR, CRR and Repo, that way more money is left with us, and we can
lend it to middle class and businessmen.
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Therefore, Urjit recommends Rajan to dump this multiple indicator method.
Ok boss. So far I’ve learned following:
Mohan
1. Monetary policy should not focus on exchange rate because our country is very large, unlike Singapore and Taiwan.
2. Monetary policy should not focus on “multiple indicator” approach, because of the limitations we just saw in above
paragraph.
Then what is your solution?
Urjit
Simple. Focus on inflation
#3: focus on inflation
In this strategy- Rajan will decide a “Nominal Anchor” say CPI -to monitor inflation. Then he’ll fix an inflation-target say 2-6% and
adjust his monetary policy so that inflation remains within that range.
Nominal anchor (CPI) method: Benefits/Advantages of
1. Once Rajan sets a CPI target. Noone can ‘influence’ him or put informal pressure- be it Chindu, Exporters, Importers, FICCI,
Mallya, Ambani or Bankers cannot influence Rajan’s policy. Because Rajan
2. Easy to track progress. Because CPI data released after every twelve days.
3. Central banks in all advanced economies and Emerging market economies have adopted this method. (Except India and China).
4. It brings transparency. Even aam-juntaa can understand what RBI’s policy is and whether it’s yielding result or not? Because
there is only target to monitor=CPI.
Previous Committees have also directly/indirectly recommended for this system. For example:
year Committee
Chairman
2007 Mumbai as International Finance Center
Percy Mistry
2009 Financial sector reform
Rajan the Boss himself
2013 Financial Sector Legislative Reforms Commission (FSLRC) BN SriKrishna
Nominal anchor (CPI) method: Drawbacks/Limitations/Anti-arguments
Mohan
Hold on a second. You’re trying to paint a very rosy picture. But if Rajan’s monetary policy tries to control CPI, it’ll have
many problems!
Urjit
Such as…??
In CPI index- more than 50% weightage is given to food and fuel components.
Mohan
Urjit
Food prices= depend on monsoon and blackmarketers. Rajan has absolutely zero control over this.
Fuel/crude oil prices= depend on external factors and Rupee-Dollar exchange rate. Rajan doesn’t have sufficient
forex reserves to control rupee-dollar exchange rate in the manner he wants (e.g. 1$=50 rupees and not 1$=60 Rs.)
You’re right. But under multiple indicator method, Rajan focuses on WPI (minus food and fuel inflation).
That’s why his policy has remained ineffective in controlling inflation.Because he always ignored food and fuel
inflation.
Infact, We must focus on CPI – for the very same reason-because it give >50% weightage to the food and fuel
inflation.
Mohan Point taken. But in India, we have three CPIs: Urban, Rural and Combined…if we try to control all three of them, then…..
Urjit
No problem. We must focus only on CPI (Combined). Its data is released @every 12 days. Very easy to monitor, tracks
price movement all over India.
Mohan Ya but still, Its data is not accurate and….
Urjit
yaar if you start to find fault in everything (like a TheH**** columnist), ….then only God can help you. Fidel Castro and
Che Guevara cannot fix India’s inflation problem. This only gets fixed from inside the RBI!
Mohan But even if Rajan focuses on this Nominal Anchor (CPI), still there will be a lag of 6-8 months before its impacts are seen.
Brother, no matter which method we use – there will be lag of 6-8 months before its impact is seen on inflation @ground
level.
Urjit
Because we are not a developed country, we are a developing country.
We’ve already learned this limitation of monetary policy in developing countries. Click me.
Ok one last obstacle. Governments own policy to fight CPI. For example, whenever prices of sugar, onion or pulses get
very high, the government arbitrarily puts export ban on those commodities, start importing them from xyz country, starts
Mohan
distributing them @subsidized rates in various cities.
http://mrunal.org/2014/02/economy-rbi-urjit-patel-committee-4-cpi-nominal-anchor-multiple-indicator-monetary-policy-framework-reforms-part-1-of-2.html?…
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Urjit
So?
So Rajan may be designed his policy to fight CPI using abc statistical projections but at random, the government will do
Mohan xyz policy on its own to fight inflation= Rajan’s statistical projections will become wrong and his monetary policy will
become #EPIFAIL.
Urjit
For this I recommend better coordination and data sharing between Government of India and RBI, regarding inflation
control.
Why Target inflation?
Mohan
I’m still not clear. Why should Rajan only focus on inflation (CPI). Other things are also important – like GDP, IIP,
employment, investment, exchange rates. why focus on CPI only, and ignore everything else?
Urjit
let me explain:
petrol and onion prices, hardship to middleclass= those are clichéd points. Let’s learn some new points.
In recent years, India’s inflation has been highest among all G20 countries.
India’s inflation has been higher than its trade competitors.
CPI
2008 2012
World
4
4
Brazil
5
5
China
6
<3
India
9
>10
S.Africa 11
6
14
5
Russia
From above table, you can see that
Between 2008 to 2012- China, South Africa and Russia have drastically reduced their inflation. Only India is the #EPICFAIL
country where inflation has increased- instead of decreasing!
Higher inflation = real interest rates decreased => makes people buy more gold=>CAD=>rupee weaken=>petrol
expensive=>everything expensive=>every more inflation =vicious cycle.
Mohan Whoa, whoa, whoa man slow down. What is real interest rate? How does it affect economy?
Nominal vs Real interest rate
Urjit Suppose I’ve 100 rupees. But instead of buying onions, I put this money in a savings account.
Observe what happens with my purchasing power:
Onion Rs./kg Money How much can you Buy?
1st Jan
20
31st Dec 100
100
5 kg
104
~1 kg
Meaning, although bank increased your money from Rs.100 to 104, but you can buy very less onions. Therefore, we must not focus
on nominal interest rate i.e. 4% but on real interest rate.
Bank deposit
Nominal Interest Rate CPI (Inflation) Real Rate of Interest=(Nominal-Inflation)
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Savings account 4.00%
11%
-7%
9.00%
11%
-2%
Fixed deposit
From above table, you can see Banks in India offer “negative” real interest. Therefore, people prefer to invest in gold, instead of
putting money in bank accounts.
Result:
Excessive gold import=>Current account deficit increased=>Rupee Weaken =>Petrol/diesel expensive=>even more inflation.
This becomes a vicious cycle where you cannot find whether hen came first or the egg came first?
When people invest money in gold, instead of putting it in bank=> businessmen get less loans=>less expansion =>less jobs=>
less growth in GDP.
Now if you compare India vs [China, Russia, South Africa]. You can see- their inflation is low=> real interest rate would be
higher => people invest less in gold=> more money flows towards banks=>business loans=>higher GDP, higher IIP (index of
industrial production).
Urjit
In other words, when Rajan frames monetary policy, he should only fight against inflation – then low GDP, low IIP will be
fixed automatically.
Mohan fair enough.
Nominal Anchor (CPI): the 4% Target
Ok far we’ve learned:
When Rajan frames monetary policy
1. He must focus on fighting inflation only.
2. To fight inflation, he must focus on “CPI”.
Now the problem? What should be his exact CPI target? 4%, 5%. 0%, -50%??
Mohan
This is easy. Rajan should design monetary policy in such way, that CPI is -50%. If bottle of desi liquor was sold @100
Rs. in 2010, then in 2014 its price should reduce to Rs.50 only. Then Maujaa hi Maujaa.
Urjit
I hate to break your spirit, but such deflationary trend is not good for economy.
Every business has ‘fixed cost of production’ minimum light bill, phone bill, office rent, staff salary etc. So, if prices keep falling
and falling, then businessman will suffer losses. He has no motivation to expand business. He wants to cut down his production
costs, by firing some of the employees= less new jobs created= unemployment = social unrest.
If prices of everything fall- then custom duty, VAT, excise duty, service tax- their collection will also decrease. Then government
has less money to spend on education, healthcare, social sector, defense, law and order = poverty, disease, crime.
Mohan Then what should be the “minimum” target? What should be the lower limit of inflation?
Urjit
Minimum 2% inflation is necessary in any economy.
Mohan Then what should be the “maximum” limit for inflation/CPI?
Urjit
I’ve analyzed data from various countries. When CPI gets higher than 6.2%, it negatively affects GDP and employment.
Therefore Rajan should ensure CPI inflation doesn’t cross more than 6%.
Mohan Ok, minimum 2% and maximum 6%.
Right RBI should try to get CPI inflation @4% with band of +/-2%.
Urjit
meaning 4-2=2% minimum
and 4+2=6% maximum
http://mrunal.org/2014/02/economy-rbi-urjit-patel-committee-4-cpi-nominal-anchor-multiple-indicator-monetary-policy-framework-reforms-part-1-of-2.html?…
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Mohan But why give this 2% band? Why not just say 4% is our target?
Because in real life, it is not possible to get inflation controlled @exactly 4% level. There will be unanticipated price
shocks in food and fuel items, wars, famines and natural disasters.
Therefore, Rajan should be given some ‘room’ to accommodate such shocks – that’s why 2-6% target.
Urjit
Besides, the RBIs of other countries also use similar ‘band’ method: observe
Central Bank of CPI target under their monetary policy
Mexico
2-4%
South Africa
3-6%
Israel
1-3%
Chile
2-4%
So, it’s a tried and tested method. we should follow the same.
Nominal Anchor CPI 4%: WHEN to reach?
Ok so far I’ve learned:
Mohan
Urjit Patel Committee wants to strengthen monetary policy framework
You insist RBI to fight inflation only.
You even gave Rajan a target: 4% CPI (Combined), with +/-2% band
Urjit
That is correct.
Mohan
well, Your recommendation is ambitious, but unrealistic. I repeat again- There are many factors outside Rajan’s control like
monsoon and black marketers. I don’t think Rajan can ever bring down inflation to 4% level.
Urjit
It is possible. Let me give you the case study of Chile.
During 90s, Chile was facing CPI inflation as high as 25%.
But in the early 2000s, the RBI of Chile made the target “3% CPI (With +/-1% band)”=2-4% CPI
Now observe the following graph- particularly the green band between 2002 to 2006. You can see Chile’s RBI has successfully
managed to contain inflation within that 2-4% level.
Urjit recommended following timeframe:
http://mrunal.org/2014/02/economy-rbi-urjit-patel-committee-4-cpi-nominal-anchor-multiple-indicator-monetary-policy-framework-reforms-part-1-of-2.html?…
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0 month (i.e. when Urjit was making report) CPI is ~10%
Within 12 months
RBI should reduce CPI to 8%
Within 24 months
RBI should reduce CPI to 6%
Then
Just try to maintain inflation within the 2-6% range. (i.e. 4% with +/-2% band)
In short: 0/12/24 (months)=>10/8/6 (CPI)
Nominal Anchor CPI 4%: How to reach?
Mohan Alright. If Chile can do it, we can also do it. But HOW?
Urjit
Using the same tools available in the present monetary policy framework.
Especially the “policy rate”.
Mohan What is policy rate?
Urjit
Urjit
Repo rate under Liquidity adjustment facility (LAF)= that’s our policy rate.
And reverse repo(RR) = Repo – minus 1%;
MSF=Repo +plus 1%
^This system is fine. I recommend that Rajan should continue with it.
RBI should not change this +/- 1% spread between RR-Repo-MSF. (unless in extreme situation) because
unpredictable policy making= not good for banking sector’s own business plans and tactical projections .
Hawkish trend: Why interest rates will rise?
Ok so far I’ve learned:
Mohan
Urjit Patel Committee wants to strengthen monetary policy framework
You insist RBI to fight inflation only.
You even gave Rajan a target: 4% CPI (Combined), with +/-2% band
You even gave Rajan a timeframe: 0/12/24 (months)=>10/8/6 (CPI)
You even gave Rajan the firing “strategy”: fight inflation via Policy rate (Repo Rate)
Urjit
That is correct.
Mohan
But then what’s the new story my friend? All these years, RBI has tried to fight inflation by using Repo rate as its “policy
rate”. But it has failed to yield any positive result. What makes you think repo rate can fix our inflation problems?
Urjit
Swami Vivekanand has said “Aim higher.” On the same logic, I recommend Repo Rate should be kept higher than CPI.
Then it’ll fix the problem.
Observe.
http://mrunal.org/2014/02/economy-rbi-urjit-patel-committee-4-cpi-nominal-anchor-multiple-indicator-monetary-policy-framework-reforms-part-1-of-2.html?…
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At present
Repo
8%
CPI
~10%
Difference (Repo MINUS CPI) -2
You can see Repo rate is lower than CPI. That’s why its ineffective. In the previous article on monetary policy, we learned that
Monetary policy Tool How to Fight inflation? How to fight deflation?
Repo rate
Increase repo rate
Decrease repo rate.
Therefore, to fight inflation repo rate MUST be increased. Urjit Patel recommends that Repo rate should be increased so much that its
higher than CPI.
At present Urjit Patel’s recommendation
Repo
8%
Should be higher than CPI. Here CPI=10, so let’s keep Repo @11%
CPI
~10%
~10
-2
(11-10)=+1
Difference
(Repo MINUS CPI)
In other words, Urjit Patel recommends that difference between Policy rate (Repo rate) and CPI should be “positive”, Only then Policy
rate can fight inflation.
What will be the consequences of high repo rate?
Banks borrow less from RBI (Because they’ve to pay more interest rate)
Banks will increase their loan interest rates (because they’ve less new money and still want to keep profit margin same)
Less business expansion (because less people take loans, due to higher interest rate)
Less new jobs created
Less income
Less demand
Sellers will reduce Prices of goods and services, to attract and retain customers.= inflation reduced.
Mohan
Wait wait wait. Urjit Patel, you’re a “hawkish” person, a person who believes inflation can be fought by increasing the
interest rates.
Urjit
So what?
Mohan
So man…Rajan raises Repo rate=>SBI increases loan interest rates=>harder to borrow for businessmen=>less
business expansion =>less new jobs=>deflationary trend=>this will hurt our GDP.
CRISIL, Moody and other experts have made statistical projections- that even in 2015, our CPI will be ~8.5%. So by
your logic, Rajan should keep Repo @9%. It will kill the growth!
Urjit
Theoretically you’re right. High interest rates are not conductive for higher GDP growth.
But Indian inflation has become so high, that extreme steps are necessary.
Besides, the RBIs of Australia, Canada, S.Africa, Mexico, Brazil, Israel…… all have taken same measure in past.
When inflation became very high, they raised repo rate to level higher than inflation. Only then problem was fixed.
Mohan
Whatever man. I’m going to write a column in TheH**** to criticize you that “If Urjit Patel Committee’s report is
implemented, interest rates will rise and growth will be killed.” (Packs his laptop and Prepares to leave.)
Urjit
WAIT! Picture abhi baaki hai mere dost. Overall I made three important recommendations. In this article we only learned
the first one:
1. @RBI fight inflation
a. Target=4% CPI, +/-2% Band [=control inflation in 2-6% range.]
b. Tool=Repo as policy rate, +/-1% spread in RR-Repo-MSF,
c. Time limit: 0/12/24 (months)=10/8/6% (CPI)
d. Strategy=keep repo higher than CPI.
2. @Chindu, give cover fire to Rajan, while he is fighting inflation (=in next article)
3. @Rajan fix accountability in your gang. (=in next article)
http://mrunal.org/2014/02/economy-rbi-urjit-patel-committee-4-cpi-nominal-anchor-multiple-indicator-monetary-policy-framework-reforms-part-1-of-2.html…
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Mock Questions
1. Incorrect statement
a. Nominal interest rate doesn’t take inflation into account.
b. Real interest rate doesn’t take Nominal interest rate into account.
c. Both A and B
d. Neither A nor B
2. What do you understand by Real interest rate?
a. Nominal interest rate plus inflation
b. Nominal interest rate minus inflation
c. Nominal interest rate multiplied with inflation
d. None of above.
3. In a futuristic society, if Real interest rate became a positive number, which of the following is most likely to be
correct?
a. Fiscal deficit increased at the expense of current account deficit.
b. People have started putting their entire savings into gold.
c. RBI and Government failed in combating inflation.
d. RBI and government successfully managed to bring down inflation below the nominal interest offered in banks.
4. Urjit Patel Committee has observed that
a. CPI lower than 2% is good for economy but CPI higher than 6% is bad for economy
b. CPI lower than 2% facilitates growth but CPI higher than 6% reduces employment.
c. CPI lower than 2% and higher than 6%, are bad for GDP and employment.
d. None of above.
5. Urjit Patel Committee has recommended that
a. RBI should continue with multiple indicator method to frame monetary policy, while targeting 4% inflation.
b. RBI should ignore fuel, food and service sector inflation and focus on core inflation only.
c. RBI should frame monetary policy while keeping CPI as the nominal anchor.
d. None of above.
6. Urjit Patel recommends RBI to:
a. Bring down consumer price index inflation to 6% within next twelve months.
b. Switch its focus from multiple indicators to exchange rate stabilization
c. both A and B
d. Neither A nor B.
7. To Combat inflation, Urjit Patel Committee has recommended RBI to:
a. Keep Repo rate lower than CPI.
b. Keep Reverse repo rate higher than MSF.
c. Keep the value of Reverse repo rate between Repo rate and MSF.
d. None of Above.
Q8. If RBI frames monetary policy with primary objective of stabilizing the exchange rate, what will be the consequences?
1. Country becomes vulnerable to shocks emanating from the country to which its currency is pegged.
2. Country becomes immune to speculative attacks in forex trading market.
3. Imported inflation will be kept in check.
http://mrunal.org/2014/02/economy-rbi-urjit-patel-committee-4-cpi-nominal-anchor-multiple-indicator-monetary-policy-framework-reforms-part-1-of-2.html…
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Choices
a.
b.
c.
d.
Only 1 and 2
Only 2 and 3
Only 1 and 3
All 1, 2 and 3.
Q9. What are the recommendations of Urjit Patel Committee?
1. Inflation should be the nominal anchor for the monetary policy framework.
2. RBI should adopt the new CPI (rural) as the measure of the nominal anchor for policy communication.
3. WPI inflation should be set at 4 per cent with a band of +/- 2
Answer choices
a.
b.
c.
d.
Only 1 and 2
Only 2 and 3
Only 1 and 3
Only 1
Q10. Match the following:
1. Purchases securities under the assumption that they can be sold later at a higher price.
I. Hawk
2. Believes that a particular stock or the market as a whole, is headed for a fall in prices.
II. Bull
3. Favors relatively high interest rates in order to keep inflation in check.
III. Bear
–
4. Favors relatively low interest rates in order to keep deflation in check.
Answer choices
Options I
II III
A
1 2
3
B
4 1
2
C
3 1
2
D
3 2
1
Q11. Match following
1. Nominal Anchor Method to frame Monetary Policy
I. Nachiket Mor
2. Financial Sector Legislative Reforms
II. Urjit Patel
III. BN SriKrishna
3. Governance of Boards of Banks in India.
IV. P. J. Nayak
4. Financial products for small businessmen.
–
5. State backwardness index
Answer choices
Options I
II III IV
A
5 1
2
3
B
3 1
3
5
C
4 1
2
5
D
4 1
2
3
Mains / interview type questions, once we finish remaining recommendations of the committee in next article.
MCQ hints:
1. incorrect statement is B
http://mrunal.org/2014/02/economy-rbi-urjit-patel-committee-4-cpi-nominal-anchor-multiple-indicator-monetary-policy-framework-reforms-part-1-of-2.html…
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2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
[Economy] RBI Urjit Patel Committee: 4% CPI, Nominal Anchor, Multiple Indicator, Monetary Policy Framework Reforms (Part 1 of 2) « Mrunal
technical formula is bit different- but here opt B
last one
<2 and >6 both bad.
second last
neither
none
second statement is wrong.
only first statement is right
hawk-interest, bull -will rise; bears-will fall
Nachi- products, Urjit- Nominal, BN-reforms, Nayak-Board.
Visit Mrunal.org/Economy For more on Money, Banking, Finance, Taxation and Economy.
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challanges, insurance penetration, Financial inclusion & Nachiket Committee
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16 comments to [Economy] RBI Urjit Patel Committee: 4% CPI, Nominal Anchor, Multiple Indicator,
Monetary Policy Framework Reforms (Part 1 of 2)
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preeti rai
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thankkkkk uuuuuuu so much sir
Aman
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I have a Question
Kis chakki ka Aanta khate ho bhai ?
ANKIT
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you are superb in economics! brillient…….
somit
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Sir ji,
You should be in the Urjit Patel committee!! Brilliant !!Thanks a ton!!
vipin kumar chopra
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Nice article!! Simple as easy to understand and that too in a funny way !!
http://mrunal.org/2014/02/economy-rbi-urjit-patel-committee-4-cpi-nominal-anchor-multiple-indicator-monetary-policy-framework-reforms-part-1-of-2.html…
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[Economy] RBI Urjit Patel Committee: 4% CPI, Nominal Anchor, Multiple Indicator, Monetary Policy Framework Reforms (Part 1 of 2) « Mrunal
dallu
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jai ho “MRUNAL BABA”
Gaurav
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Amazing article. Mrunal Sir, you make things so easy to understand. Thanks a lot.
Chester
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Hello Mrunal Sir….
Plzz can you let us know the GS and any general topics you are going to touch in coming 1-2 months, atleast if you have any plan in this,
can you share with us, If you let us know we can schedule our preparation well, cozzz your approach provides a GATEWAY for us to study
the topics in depth for eg: your topics of Land Reforms, Food Processing, Geographical factors. I hope you will let us know soon.
& one more thing
Sir we are waiting for final article of [Land Reforms] :forest rights act, draft national policy and few other misc topics & [Geography] Location
Factors : 6th and 7th Articles……
Thanks in advance
Suman Shekhar
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Superb Article !
So easy to understand and memorize..
Waiting for the next parts.
Satya Brat
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thanks!!!
PTA27
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Mrunal Sir, In your previous article you had mentioned qualitative tools are better when compared to quantitative tools, you had nice pictorial
representation of the facts. But how come again policy rate will become a effective tool in controlling inflation, kindly clarify. Thank you.
priya singh
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thanks sir….i was trying to understand this issue….today u clear my doubts…thanks a lot
Rohin kotwal
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speechless Mrunal sir :)
Santosh
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Grt fan of urs :) Ur wonderful creation of god :P
Dheeraj
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One word…
Awesome…
khushboo
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Sir, how many nationalised banks r there is it 19 or 21?
SBI is nationalised or PSU.
nd IDBI also?
http://mrunal.org/2014/02/economy-rbi-urjit-patel-committee-4-cpi-nominal-anchor-multiple-indicator-monetary-policy-framework-reforms-part-1-of-2.html…
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