2. CONTENTS
• Introduction of Monetary Policy
• Evolution of Monetary Policy in India.
• Objectives
• Instruments
• Repo rate and Reverse repo rate
• MFS
3. MONETARY POLICY
• A policy employing the central banks control of the supply of money as an
instrument for achieving the objectives of general economic policy is a monetary
policy.
4. EVOLUTION OF MONETARY POLICY IN
INDIA
• After the crises in 1991, stabilization went simultaneously with structural reforms.
• Change in context fundamentally altered the manner in which monetary policy
began to be formulated
• Macroeconomics and price stability received greater emphasis
• Continuous rebalancing of priority between growth and price stability
5. OBJECTIVES
• Rapid Economic Growth
• Price Stability
• Exchange Rate Stability
• Balance of Payments (BOP) Equilibrium
• Full Employment
• Equal Income
6. INSTRUMENTS OF MONETARY POLICY
• General (Quantitative) Methods
• Selective (Qualitative) Methods
7. QUANTITATIVE METHODS
• Open Market operations
• Bank rate policy
• Cash Reserve ratio
• Statutory Liquidity Requirement
8. QUALITATIVE METHODS
• Credit Ceilings
• Provision of Minimum Margin requirement
• Direct Action
• Moral Persuasion
10. OPEN MARKET OPERATIONS
• It is purchase and sale by central bank of a variety of assets, such as foreign
exchange, gold and government securities
11. BANK RATE
• This is the rate at which central bank (RBI) lends money to other banks or financial
institutions.
• If the bank rate goes up, long-term interest rates also tend to move up, and vice-
versa.
• Bank Rate is 6.25% and also known as discount rate.
12. CASH RESERVE RATIO
• Every commercial bank has to keep a certain percentage of their deposits with the
central bank called as cash reserve ratio.
• At present it is 4%
13. STATUTORY LIQUIDITY RATIO
• This term is used by bankers and indicates the minimum percentage of deposits that
the bank has to maintain in form of gold, cash or other approved securities. It
regulates the credit growth in India.
• At present SLR is 40%.
15. CREDIT CEILINGS
• Certain conditions are laid by the Central Bank to see proper regulation of
consumer credit.
16. PROVISION OF MINIMUM MARGIN
REQUIREMENT
• This is done keeping in view the difference between the value of security and the
amount of ad.
17. DIRECT ACTION
• It has its direction and restrictive measures, which all the concern banks should
follow regarding the lending and investment
18. MORAL PERSUASION
• It helps the Central Bank to secure the willingness and cooperation, but then that
depends on the amount of respect and authority the Central Bank enjoys among the
member banks to cover any loss.
19. REPO RATE AND REVERSE REPO RATE
• Repo rate is the rate at which RBI lends to commercial banks generally against
government securities.
• Reduction in Repo rate helps the commercial banks to get money at a cheaper rate
and increase in Repo rate discourages the commercial banks to get money as the
rate increases and becomes expensive.
• Repo rate 6%.
• Reverse Repo rate is the rate at which RBI borrows money from the commercial
banks.
• Reverse Repo rate 5.75%.
20. MSF - MARGINAL STANDING FACILITY -
• It is a special window for banks to borrow from RBI against approved government
securities in an emergency situation like an acute cash shortage.
• MSF rate is higher then Repo rate.
• Current MSF Rate: 6.25%
