Monetary Poilicy

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MONETARY POLICY

Presented by: Varu

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A BIRDS EYE VIEW

Introduction

Regulatory Body

Objectives of Monetary Policy

Instruments of Monetary Policy

Indias Monetary Policy

Limitations and Effectiveness of Monetary Policy

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INTRODUCTION

Monetary policy refers to the action

taken by the monetary authorities tocontrol and regulate the demand forand supply of money with a givenpurpose.

Essentially a programme ofaction undertaken by the

monetary authorities, generallythe central bank, to control andregulate the supply of moneywith the public and the flow ofcredit with a view to achievingpredetermined macroeconomicgoals

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REGULATORY BODY:THE RESERVE BANK OFINDIA

CD DeshmukhThe First IndianGovernor of RBI

Dr. RaghPresent InGovernor

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OBJECTIVES OF MONETARY POLICY

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INSTRUMENTS OF MONETARY POLICY

Quantitative orGeneral Methods

Qualitative orSelective Methods

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INSTRUMENTS OF MONETARY POLICY

Quantitative or General

Methods

Influence the total volume of creditwithout regard for the purposefor which the credit is put. Methodsinclude:

Bank Rate Policy

Open Market Operations The Repo Rate

Cash Reserve Ratio

Statutory Liquid Ratio

Qualitative or Selective

Methods

Regulate the flow of credit intoparticular directions of theeconomy. Methods include:

Margin Requirements

Moral Suasion

Rationing of Credit

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Quantitative or General Methods

Rate at which acentral bankgives credit to

the commercialbanks.

Bank ratepolicy

The central bankbuys and sellsgovernment

securities in theopen market

Open marketoperations

Rate at which thereserve banklends money to

commercial banksin case of anyshortfall of funds

The RepoRate

Minimumpercentagdeposits commercwith the bank as creserve

Cash reseratio

Liquid assets ofcommercial banksas a minimumpercentage oftheir totaldeposits

StatutoryLiquid Ratio

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Qualitative or Selective Methods

MarginRequirements Percentage of

down paymenton borrowings

MoralSuasion Persuasion,

request, andappeal by thecentral bank tothe memberbanks to expandor contractcredit, as thesituationdemands. R

ationingofCredit Re

fixequme

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INDIAS MONETARY POLICY: A CURSORY GLAN

Particulars Current Rate

Bank Rate 9.0%CRR 4.0%

SLR 23%

Repo Rate 8.0%

Reverse Repo Rate 7.0%

Re/$ 59.18 (as on 30thMay,

2014)

9%

4%

23%

8%

7%

Current Rates

B

C

S

R

R

Source: www.rbi.org.in

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THE LIMITATIONS AND EFFECTIVENESS OF MOPOLICY

The effectiveness of monetary policy depends on the following factors:

The Time Lag

Problems in Forecasting

Growth of Non-banking FinancialInstitutions

Underdeveloped Money and CapitalMarkets

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Thank you.