Monetary Policy

CD Deshmukh The First Indian Governor of Reserve Bank of India (RBI)

Dr. D. Subbarao Present Governer of Present Governer of

Monetary policy- Meaning

The part of the economic policy which regulates the level of money in the economy in order to achieve certain objectives. In INDIA,RBI controls the monetary policy. It is announced twice a year, through which RBI,regulate the price stability for the economy.

1.slack season policy 2.Busy season policy

April-September October-March

Importance of Monetary Policy

Gross National Product (GNP) = C + I + G + X Where: C = Private Consumption expenditure I = Private Investment Expenditure G = Government Expenditure X = Net Exports

C, I, X can be influenced by the monetary policy which can also influence the private consumption and investment spending and exports and imports.

OBJECTIVES
Economic Growth Full Employment Flow of credit in all sectors of economy

Price Stability

Exchange rate stability Equilibrium in balance of payments Greater equality in the distribution of income and wealth

Quantitative measures
Bank rate Open market operations Cash reserve ratio (CRR) Statutory liquidity ratio (SLR)

Qualitative Measures
Rationing of credit Moral Suasion Direct Action Regulation in consumer credit Changes in margin requirements

IF :
Bank Rate Bank Rate

CRR/SLR

CRR/SLR

LIMITATION OF MONETARY POLICY

Non-monetized sector Non-banking financial institution Unorganised financial markets

Higher liquidity Non-appearance of money Time tag Lack of coordination between monetary and fiscal policy

Monetary Policy Of 2011-2012

Current Rates
Inflation Bank Rate CRR 2.9% 9.50% 4.75%

SLR
Repo Rate

24%
8.50%

Reverse Repo Rate 7.50% PLR Re/$ 11.5 to 12% 51.27%

Conclusion
As articulated in the June 16th policy statement, RBI will continue to maintain liquidity conditions such that neither surplus liquidity dilutes the monetary policy stance nor large deficit chokes off fund flows to productive sectors of the economy. The market at present has discounted the rise of 25 bps in interest rates but global concerns still continue to weigh on the market.

Bibliography
http://www.rbi.org.in/scripts/NotificationUser.asp x?Id=6376 http://www.rbi.org.in/scripts/NotificationUser.asp x?Id=5 602 http://stockthoughts.wordpress.com/2008/04/05/ what-is-cash-reserve-ratio-and-how-will-the-crrhike-impact-you/ http://www.banknetindia.com/ http://www.investopedia.com/terms/m/monetary policy.asp www.ask.com/Economics+Definitions

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