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Group 5
Kapali Prachi Pankaj Nikhil Kedar On Ali Chandra 05 16 21 28 40 52 56
Macroeconomic Policies
Physical Policy
Related to overcoming specific problems of the economy
Fiscal Policy
Related to budget, government expenditure, taxation
Monetary Policy Related to money supply, exchange rate control and bank rate control
Fiscal Policy
Use of Government Expenditure, and taxation to manage the economy.
Purpose of Fiscal Policy Stabilise economic growth, avoiding the boom and bust economic cycle
Variables affected by Fiscal Policy in the economy Aggregate demand and the level of economic activity The pattern of resource allocation The distribution of income.
Physical Policy
Meant to affect only strategic points of the economy
Purpose of Physical Policy Overcome specific problems such as pricing of particular commodity, shortages or surpluses developing in the economy etc.
Variables affected by Physical Policy in the economy Price and distribution of specific commodity Investment and production Foreign Trade
Monetary Policy
Regulation of supply of Money and Cost and Availability of Credit in the economy Purpose of Monetary Policy Maintain price stability, ensure adequate flow of credit to the productive sectors of the economy and overall economic growth
Variables affected by Monetary Policy in the economy Interest Rates Liquidity Credit Availability Exchange Rates
Open Market Operations (OMO) Purchase and sale of securities in the open market
Current Rates
Inflation Bank Rate CRR 0.27 (New low in 30 years) 6.0% 5.0
SLR
Repo Rate
24.0%
5.0%
Target Variables
Policy Variables - Money supply - OMO: Liquidity conditions - policy rates (CRR, repo etc.)
-Savings
-Investment
CRR Movement
Before 1991
Government raised funds below market rate No depth in Government Securities Market Regulation of deposit rates Under developed financial markets, Less financial instruments availability
Result
Complex, distorted interest rate structure Adversely affected viability and profitability of banks Transparency and norms could not be followed strictly
CRR Movement
Boost Economy after 2001 Slowdown / dotcom bubble Rise in CRR to control liquidity, due to Heavy Capital Inflow & to curb Re Appreciation
CRR Cuts to boost economy after Sub prime loss / Global meltdown
Inflation Movement
CRR hikes proved to Be effective To curb Inflation Uncontrolled Inflation despite Further CRR hikes Inflation Down on account of global credit crunch
http://www.rgemonitor.com/emergingmarkets-monitor/archive/200806/
SLR Movement
Sterilization bonds under (MSS) - April 2004 Cap. Rs.700 Cr. In 2005 & 1500 Cr. In 2007
www.rgemonitor.com/blog/economonitor/248231
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Tighter credit
Recession Estimated PPP Global Growth 0.5% Demand Slump Job losses
Production Plunge
Impact on India
Money and credit market
Domestic Banks Local Institutions Domestic MFs NBFC
Re
Financial Channel
20
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