RBI & MONETARY POLICY OF RBI

RBI
ORIGINALLY STARTED AS SHAREHOLDERS BANK (PRIVATE SECTOR BANK) IN 1935 WITH PAID UP CAPITAL OF RS. 5 CRORES. TOOK OVER THE FUNCTION OF CURRENCY ISSUE FROM GOI AND CREDIT CONTROL FROM THE THEN IMPERIAL BANK OF INDIA. NATIONALISED ON 01.01.1949

FUNCTIONS OF RBI
ISSUER OF CURRENCY IN INDIA BANKERS TO THE GOVERNMENT. BANKER TO COMMERCIAL BANKS ORGANISER OF COMMERCIAL BANKING SYSTEM REGULATOR AND SUPERVISOR OF THE FINANCIAL SYSTEM FINANCIAL SUPERVISION

MONETARY AUTHORITY MONETARY AND CREDIT POLICIES. CONTROLS THE VOLUME OF CREDIT. AUTHORITY TO REGULATE AND SUPERVISE PAYMENT SYSTEM. MANAGER OF FOREIGN EXCHANGE. MAINTAINS THE VALUE OF CURRENCY.

 DEVELOPMENT OF RURAL BANKING. DEVELOPMENT OF MONEY AND CAPITAL MARKET PROMOTION OF FINANCIAL INSTITUTIONS. DEVELOPMENTAL ROLE OF RBI.

ORGANISATION OF RBI
CENTRAL BOARD OF DIRECTORS CONSISTS OF: A GOVERNOR AND NOT MORE THAN 4 DEPUTY GOVERNORS APPOINTED BY CENTRAL GOVT. 4 DIRECTORS NOMINATED BY CENTRAL GOT. ONE FROM EACH OF THE 4 LOCAL BOARD. 10 DIRECTORS NOMINATED BY CENTRAL GOVT. ONE CENTRAL GOVT. OFFICIAL.

 LOCAL BOARD OF RBI 4 LOCAL BOARD WITH HEADQUARTERS AT MUMBAI. FROM 4 REGIONS OF THE COUNTRY I.E.MUMBAI, DELHI, KOLKATA AND CHENNAI. IT CONSISTS 5 MEMBERS WHICH ARE APPOINTED BY CENTRAL GOVT FOR A TERM OF 4 YEARS. IT ADVISE CENTRAL BOARD ON LOCAL MATTERS, TERRITORIAL AND ECONOMIC INTEREST

 GOVERNOR IS THE CHIEF EXECUTIVE AUTHORITY OF RBI. HE HAS THE POWER OF GENERAL SUPRITENDENCE AND DIRECTOR OF THE AFFAIRS AND BUSINESS OF THE BANK. DEPUTY GOVERNOR IS NOMINATED TO ACT IN THE ABSENCE OF GOVENOR.

MONETARY POLICY OF RBI

REGULATORY POLICY. IT CONTROLS SUPPLY OF MONEY AVAILABILITY OF BANK CREDIT COST OF MONEY I.E RATE OF INTEREST. MONETARY POLICY IS ANNOUNCED TWICE A YEAR I.E. APRIL AND OCTOBER. RBI ALSO BRINGS MID TERM REVIEW OF THE POLICY.

OBJECTIVES OF MONETARY POLICY.

GROWTH WITH STABILITY. FINANCIAL STABILITY PROMOTION OF FINANCIAL INCLUSION. EMPLOYMENT GENERATION. EXTERNAL STABILITY ENCOURAGING SAVINGS AND INVESTMENTS. REGULATION OF NON BANKING FINANCIAL INSTITUTIONS.

INSTRUMENTS OF RBIS MONETARY POLICY

(I) GENERAL OR QUANTITATIVE METHODS. 1. BANK RATE 2. REPO AND REVERSE REPO RATE. 3. CRR 4. SLR 5. OPEN MARKET OPERATIONS (II) SELECTIVE OR QUALITATIVE METHODS. 1. MARGIN REQUIREMENTS 2. DISCRIMINATORY RATES OF INTEREST. 3. CEILING ON CREDIT 4. DIRECT ACTION 5. MORAL SUASION

RECENT CHANGES IN RBIS MONETARY POLICY

1. 2. 3. 4. 5. 6. 7. 8. 9. MULTIPLE INDICATOR APPROACH. EXPECTATION AS A CHANNEL OF MONETARY TRANSMISSION LIQUIDITY ADJUSTMENT FACILITY (LAF) SELECTIVE METHODS PHASED OUT. DELINKING MONETARY POLICY FROM BUDGET DEFICIT. DEREGULATION OF INTEREST RATE. REDUCTION IN RESERVE REQUIREMENTS. PROVISION OF MICRO FINANCE EXTERNAL SECTOR

RBIS SHORT TERM LIQUIDITY MANGEMENT

LIQUIDITY MANAGEMENT OF A CENTRAL BANK IS DEFINED AS THE FRAMEWORK , SET OF INSTRUMENTS AND THE RULES THAT THE CENTRAL BANK FOLLOWS IN ORDER TO MANAGE THE AMOUNT OF MONEY SUPPLY TO CONTROL SHORT TERM INTEREST RATES WITH THE OBJECTIVE OF PRICE STABILITY

FACTORS REPONSIBLE FOR SHORT TERM LIQUIDITY MANAGEMENT

DEREGULATION OF INTEREST RATES AND EXCHANGES RATES. CAPITAL INFLOW OF FDI AND FII UNCERTAINTY IN FINANCIAL MARKET DUE TO FOREIGN CAPITAL FLOWS EXPENSIVE EXPORTS

MEASURES USED BY RBI FOR SHORT TERM LIQUIDITY MANAGEMENT

STERILIZATION USE OF REPOS/REVERSE REPO INTERIM LIQUIDITY ADJUSTMENT FACILITY (LAF) LIQUIDITY ADJUSTMENT FACILITY INTRODUCTION TO MARKET STABILIZATION SCHEME(MSS)