Group Members

Sarmistha

Sahoo
Babaji Prusty
Kaberi Majhi

What is Monetary Policy?

Monetary

policy is the policy

by which the monetary
authority of the country
controls the supply of money.

Monetary

policy refers to the

use of instruments under the
control of the RBI to regulate
the availability cost and use
of money and credit.

Types of Monetary Policy

Objectives of Monetary Policy:Rapid growth of economics

Price stability
Exchange rate stability
Full employment/Increased employment
Equal income distribution
Balance of Payment(BOP) equilibrium

Monetary Policy of India

The Reserve Bank of India(RBI) is the
central banking system of India and
controls the monetary policy of rupee.
This institution was established on 1 April
1935 and plays an important role in the
development strategy of Government.

Making of Monetary Policy

Monetary Policy is communicated to the public

mostly by annual policy statement in April and
mid-term review on October.
The statements today are more analytical and
elaborate & RBI website is an effective medium of
communication.
Governor, Deputy Governors, committee of board
meet every week to review the monetary,
economic and financial conditions.
Periodic consultations and Ministry of Finance for
significant technical, analytical, institutional and
dynamic inputs.

Governor of RBI
1935-1937

Sir Osborne Smith

1st Governor of RBI

2 0 1 3 - Present

Raghuram Rajan
Present Governor of RBI

Role of RBI
1.
2.
3.

4.

5.
6.
7.

Issue of Bank notes

Banker to Government
Custodian of Cash Reserves of Commercial
Banks
Custodian of Countrys Foreign Currency
Reserves
Lender to Last Resort
Central Clearance and Accounts Settlement
Controller of Credit

Major Operation of Monetary

Policy
Cash

Reserve Ratio:-

Cash Reserve Ratio is a certain

percentage of bank deposits which banks are
required to keep with RBI in the form of reserves
or balances.
Statutory

Liquidity Ratio:-

The minimum percentage of

deposit that the bank has to maintain in the form
of gold, cash or other approved securities are
known as Statutory Reserve Ratio.

 Bank

Rate:-

The rate at which RBI lends money

to domestic banking system. The Bank Rate is
also known as Discount Rate.
This banking system involves commercial banks,
co-operative banks, IFC, EXIM Bank and other
approved financial institution.
Call

Money Rate:-

The rate at which commercial bank

borrows money from other commercial banks for a
short period.

Prime Lending Rate:The rate at which the commercial

bank can provide credit to industries or business.

Deposit Rate:The rate of interest at which

the customers are paid interest on their bank
deposits.

Bond Rate:To meet expenses for the

development, Government issues the bond
maturing in definite period at a definite rate.

 Repo

and Reserve Rate:The interest rate at which RBI

provides loan to commercial banks is
known as REPO RATE.
The rate at which RBI takes short term
credit is known as RESERVE REPO RATE.

Operations

Current RBI
Rates:-

Rate

Bank Rate

9%

CRR

4%

SLR

22%

Repo Rate

8%

Reserve Repo Rate

7%

Inflation

8%

Marginal Standing
Facility Rate

9%

Impact of Monetary Policy on

Indian Economy

 Economy:-

The state of a country or region in terms of

the production and consumption of goods and
services and the supply of money.

Money

Supply:-

The total stock of money circulating in an

economy is the money supply. The circulating money
involves the currency, printed notes, money in the
deposit accounts and in the form of other liquid
assets.

Inflation:-

Inflation occurs due to an imbalance between

demand and supply of money, changes in
production and distribution cost or increase in taxes
on products. When economy experiences inflation,
i.e. when the price level of goods and services rises,
the value of currency reduces.
Formula for calculating Inflation=
(WPI in month of current year-WPI in same month of
previous year)
---------------------------------------------------------------- X 100
WPI in same month of previous year

 Lending

Rate:-

Lending Rateis therateat which

financial instituteslendmoney. It constitutes the
base from which banks thenlendmoney to the
final customer.
Interest

rate:-

Aninterest rateis the rate at which

interest is paid by a borrower (debtor) for the use
of money that they borrow from a lender(creditor).
Specifically, the interest rate (I/m) is a percentage
ofprincipal(P) paid a certain number of times (m)
per period (usually quoted per year).

 'GROSS

DOMESTIC PRODUCT - GDP'

The monetary value of all
the finished goods and services produced
within a country's borders in a specific
time period, though GDP is usually
calculated on an annual basis. It includes
all of private and public consumption,
government outlays, investments and
exports less imports that occur within a
defined territory.

GDP = C + G + I + NX

where:
"C" is equal to all private consumption, or
consumer spending, in a nation's economy
"G" is the sum of government spending
"I" is the sum of all the country's businesses
spending on capital
"NX" is the nation's total net exports,
calculated as total exports minus total
imports. (NX = Exports - Imports)

Limitation:

Restricted Scope of Monetary Policy in Economic

Development.
Limited Role in Controlling Prices.
Unfavourable Banking Habits.
Underdeveloped Money Market.
Existence of Black Money.
Conflicting Objectives
Influence of Non-Monetary Factors
Limitations of Monetary Instruments
Proper Implementation of the Monetary Policy:

Thank You