CHANGE IN OBJECTIVES OF

MONITARY POLICY AND USE OF

MONETARY INSTRUMENTS
Abu baker(091103)
Bhargav shaker(091113)
Kullbushan(091123)
Priyanka suman(091133)
Sandeep(091143)
Sumana mitra(091155)
 MONETARY POLICY
It is the part of economic policy which regulates the level of
money in the economy
In order to regulate inflation, improve balance of payments,
increase gross national
Product etc. RBI in case of INDIA controls monetary policy

The policy traditionally announced twice a year through which RBI

insures price
April –September slack
Stability for economy
season policy

October –march busy

season policy
 THREE IMPORTANT
OBJECTIVES
o promote and encourage economic growth in the
onomy

o achieve price stability by controlling inflation and

lation

o ensure economic stability at full employment or

ential level of output
 QUANTITATIVE
INSTRUMENTS
1) Cash reserve ratio (CRR)

2)Statutory liquidity ratio (SLR)

3)Bank rate

4)Open market operations (OMO)

5)Repo and Reverse repo rate

CASH RESERVE RATIO
CRR or cash reserve ratio refers to a portion of deposits (as cash) which
Banks have to keep/maintain with RBI

CRR Interest rate investments

Post reform(1991-2009)
 10
12
14
16

0
2
4
6
8
9
1 -9
2
2
9
1 -9
3
3
9
1 -9
4
4
9
1 -9
5
5
9
1 -9
6
6
9
1 -9
7
7
9
1 -9
8
8
9
1 -9
9
9
1 -0
0
0
2 -0
1
1
0
2 -0
2
0
2 -0
3
3
0
2 -0
4
4
0
2 -0
5
5
0
2 -0
6
6
0
2 -0
7
7
0
2 -0
8
8
0
2 -0
9
CRR
INFLATION
EFFECT OF CRR BY INFLATION
EFFECT OF CRR WITH GDP
STATUTORY LIQUIDITY
RATIO
In India, RBI has imposed another reserve requirement in addition to CRR
it is called statutory liquidity ratio

The SLR is the proportion of the total deposits which commercial banks are
Statutorily required to maintain in the form of liquid assets in addition to
Cash reserve ratio
 post reform(1991
-2009)
50
40 39 3835
30 31
20 25 25 25 25 2524
10 SLR RATE
0
19

193

195

197

19

201

203

205

207

209
OPEN MARKET
OPERATIONS
An important instrument of monetary policy, that Reserve bank of India purchases
And sells securities in open market operations

P S
U A
R expansion L Contraction
C of E of
H S
Monetary policy Monetary policy
A
S
E
S
 0
20000
40000
60000
80000
100000
120000
6
9
1 -9
7
7
9
1 -9
8
8
9
1 -9
9
9
1 -0
0
0
2 -0
1
1
0
2 -0
2
0
2 -0
3
3
0
2 -0
4
4
0
2 -0
5
5
0
2 -0
6
6
0
2 -0
7
7
0
2 -0
8
OMO PURCHASES

8
0
2 -0
9
OM O…
 10
12
14
16

0
2
4
6
8
6
9
1 -9
7

8
9
1 -9
9

0
2 -0
1
INT
R E

0
2 -0
3
STR

4
0
2 -0
5
ATE
S

6
0
2 -0
7

8
0
2 -0
9
RATES
INTREST
 BANK RATE
Bank rate is the minimum rate at which the central bank
provides loans to Commercial banks

It is also called discount rate because bank provides finance

To the commercial banks by rediscounting bill of exchange

When the general bank raises the bank rate, the commercial
bank raises their lending rates, it results in less borrowing and
Reduces money supply in the economy
 PRE REFORM
BANKRATE
12
10 10 10 10 10 10
9 9 9
8
7.5
6 6 6
BANK RATE
4
2
0
1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990
 POST REFORM
BANKRATE
14
12 12 12 12 12 12
10
8 8 8 7.5
6 6 6 6 6 6 6
BANKRATE
4
2
0
 INTREST RATE WITH EFFECT OF BANK RATE
16
15
14 14
13 12.5 12.25
12.25
12 12 12 12 12 11.5 12
11 10.75
10.75
10
8 8 8 7.5
6 6 6 6 6 6 6 6 6 INTREST RATES
4 BANK RATE
2
0
 REPO & REVERSE REPO
RATE
REPO RATE:

This is the rate at which the central bank funds to the monetary
Market

REVERSE REPO RATE:

The rate at which central bank borrows funds from the commercial banks
 0
1
2
3
4
5
6
7
8
9
r
a
M -0
4

4.5
l -0
Ju 4

v
o
N -0
4

r
a
M -0
5

5
l -0
Ju 5 6
v
o
N -0
5

r
a
M -0
6
5.5
6.5

l -0
Ju 6

v
o
N -0
6
6

r
a
M -0
7
7.25

l -0
Ju 7

v
o
N -0
7

r
a
M -0
8
6

l -0
Ju 8

v
o
N -0
8
6
7.75 8

r
a
M -0
9
6.5
5.5

3.25
5 4.75

Repo rate
REVERSE REPO AND REPO RATE

Reverse repo
   BANK % REVERSE % REPO % CRR % SL %
RATE change REPO change RATE change change R change
Mar- 6   4.5   6   4.5   25  
04
Oct-04 6 0 4.5 0.00% 6 0.00% 5 11.11% 25 0.00%
Apr-05 6 0 5 11.11% 6 0.00% 5 0.00% 25 0.00%
Jan-06 6 0 5.5 10.00% 6.5 8.33% 5 0.00% 25 0.00%
Jul-06 6 0 6 9.09% 7 7.69% 5 0.00% 25 0.00%
Jan-07 6 0 6 0.00% 7.25 3.57% 5.5 10.00% 25 0.00%
Mar- 6 0 6 0.00% 7.75 6.90% 6 9.09% 25 0.00%
07
Apr-07 6 0 6 0.00% 7.75 0.00% 6.5 8.33% 25 0.00%
Apr-08 6 0 6 0.00% 7.75 0.00% 7.75 19.23% 25 0.00%
May- 6 0 6 0.00% 7.75 0.00% 8.25 6.45% 25 0.00%
08
Jun-08 6 0 6 0.00% 8.5 9.68% 8.25 0.00% 25 0.00%
Oct-08 6 0 6 0.00% 8 -5.88% 6 -27.27% 25 0.00%
Dec- 6 0 5 -16.67% 6.5 -18.75% 5.5 -8.33% 24 -4.00%
08
Jan-09 6 0 4 -20.00% 5.5 -15.38% 5.5 0.00% 24 0.00%
Apr-09 6 0 3.25 -18.75% 4.75 -13.64% 5 -9.09% 24 0.00%
Feb-10 6 0 3.25 0.00% 4.75 0.00% 5.75 15.00% 25 4.17%
 QUALITATIVE
INSTRUMENTS
Selective credit control

Rationing of credit

Moral persuasion

Direct action
THANK YOU