Monetary Policy

Monetary Policy
Meaning:- Monetary Policy refers to
that policy through which the govt. or
the central bank of the country controls
(i) the supply of money (ii) availability
of money and (iii) cost of money or
rate of interest in order to attain a set
of objectives oriented towards the
growth and stability of the economy.
Objectives of Monetary Policy
1) Full employment
2) Economic growth
3) Price stability
4) Exchange stability
5) Reduction in economic inequality
Parameters or Instruments of
Monetary policy
Supply of money:- supply of money
ordinarily refers to the currency issued by
the monetary authority and the demand
deposits lying in the banks of the country.
Rate of interest or cost of
money:-
Availability of money(credit
control):- the ease with which at any
given rate of interest money can be
borrowed from financial institutions.
Contd.
Methods of Credit Control:-
Quantitative credit control: Is to
control the total volume of credit in the
country. OR whereby the central bank
controls the quantity of credit in a country.
Qualitative or selective credit
control: It aims at regulating the amount
of credit for certain selective purposes.
Quantitative Credit Control
i. Bank rate:- It is that minimum rate at
which Central Bank of a country is
willing to lend to the other banks of the
nation.
ii. Open market operations:- it
means when the central bank or the
govt. buys or sells securities in the open
market.

Contd.
iii. Change in minimum reserve
fund:- all banks are required to keep a
given percentage of their total deposits
as cash reserves with the Central Bank,
it is known as Reserve Fund.
iv. Change in Liquidity Ratio:- every
bank is required to keep a given
proportion of its deposits as cash with
itself, its known as liquidity ratio.

Qualitative or selective Credit
Control
i. Change in margin requirements of
loans:
ii. Rationing of credit:
iii. Direct action:

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