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  1. 1.      Before we start with our topic RBI Policy on Inflation we want everyone should be familiar with the word RBI . What is history of RBI ? What is its Structure ? What are its objectives and functions ? What is Inflation and how it is measured?
  2. 2.    Reserve Bank of India (RBI) is India's Central Banking Institution, which controls the monetary policy of the Indian rupee, established on 1 April 1935 in accordance with the provisions of the Reserve Bank of India Act,1934 under guidelines laid down by Dr. B.R Ambedhkar. The Seal of RBI have sketch of the Tiger and Palm Tree. The Central Office of the RBI initially Headquartered at Kolkata now permanently at Mumbai. RBI is fully owned by Government of India.
  3. 3.  The General superintendence and direction of the RBI is entrusted with the 20-members Central Board of Directors which includes :      The Governor (currently Duvvuri Subbarao), Four Deputy Governors, One Finance Ministry Representative, Ten Government-nominated Directors to represent important elements from India's economy, And Four Directors to represent Local Boards headquartered at Mumbai, Kolkata, Chennai and New Delhi.
  4. 4.   Main Objective of RBI is to assist development strategy of the Government of India. Various Functions includes:  Bank of Issue  Monetary Authority  Manergial of Exchange Control  Issuer of Currency  Banker of Banks  Detection of Fake Currency
  5. 5.    Inflation is a rise in the general level of prices of goods and services in an economy over a period of time . When the general price level rises, each unit of currency buys fewer goods and services . Consequently, Inflation also reflects an erosion in the purchasing power of money . A Chief measure of Price Inflation is the Inflation Rate, the annualized percentage change in a general price index (normally the Consumer Price Index) over time. High rates of inflation and Hyperinflation are caused by an excessive growth of the money supply.
  6. 6.  Inflation's effects on an economy may be Positive and Negative.  Positive effects include ensuring that central banks can adjust nominal interest rates (intended to mitigate recessions), and encouraging investment in non-monetary capital projects.  Negative effects of inflation include a decrease in the real value of money and other monetary items over time, uncertainty over future inflation which may discourage investment and savings, and if inflation is rapid enough, shortages of goods as consumers begin hoarding out of concern that prices will increase in the future.
  7. 7.      RBI is the main monetary authority of the country , It formulates, implements and monitors the Monetary policy. Objectives are maintaining price stability and ensuring adequate flow of credit to productive sectors. RBI is Regulator and Supervisor of the financial system and prescribes broad parameters of banking operations within which the country's banking and financial system functions. Main objectives is to maintain public confidence in the system, protect depositors‘ interest and provide cost-effective banking services to the public. The RBI controls the monetary supply, monitors economic indicators like the gross domestic product.
  8. 8. Bank Rate:     RBI lends to the commercial banks through its discount window to help the banks meet depositor’s demands and reserve requirements. The interest rate the RBI charges the banks called Bank Rate. If the RBI wants to increase the liquidity and money supply in the market, it will decrease the bank rate and , If it wants to reduce the liquidity and money supply in the system, it will increase the bank rate. Presently, the bank rate is 9.0%.
  9. 9. Cash Reserve Ratio (CRR) :     Every commercial bank has to keep certain minimum cash reserves with RBI. RBI uses this tool for securing the monetary stability in the country, it increase or decrease the reserve requirement depending on whether it wants to effect a decrease or an increase in the money supply. An increase in Cash Reserve Ratio (CRR) will make it mandatory on the part of the banks to hold a large proportion of their deposits in the form of deposits with the RBI. This will reduce the size of their deposits and they will lend less. This will in turn decrease the money supply. The current rate is 4.75%.
  10. 10. Statutory Liquidity Ratio (SLR):    Banks maintain liquid assets in the form of gold, cash and approved securities. Higher liquidity ratio forces commercial banks to maintain a larger proportion of their resources in liquid form and thus reduces their capacity to grant loans and advances, thus it is an anti-inflationary impact. Higher liquidity ratio diverts the bank funds from loans and advances to investment in government and approved securities. Presently, SLR rate is 23%.
  11. 11.  RBI uses three kinds of selective credit controls:  Minimum margins for lending against specific securities.  Ceiling on the amounts of credit for certain purposes.  Discriminatory rate of interest charged on certain types of advances.  Direct credit controls in India are of three types:  Part of the interest rate structure i.e. on small savings and provident funds, are administratively set.  Banks are mandatory required to keep 24% of their deposits in the form of government securities.  Banks are required to lend to the priority sectors to the extent of 40% of their advances.
  12. 12.     RBI left Interest rates unchanged citing inflationary pressures, but cut the Statutory Liquidity Ratio to 23% to increase the flow of credit to industry with Repo Rate at 8 per cent and Cash Reserve Ratio for banks at 4.75 per cent. SLR cut will maintain liquidity to facilitate smooth flow of credit to productive sectors to support growth lowering policy rates will only aggravate inflationary impulses without necessarily stimulating growth , RBI Review. RBI lowered the economic growth projection to 6.5 percent. Inflation forecast also raised to 7 percent.