INTRODUCTION

The Monetary and Credit Policy is the policy statement, traditionally announced twice a year, through which the Reserve Bank of India seeks to ensure price stability for the economy.These factors include - money supply, interest rates and the inflation. In banking and economic terms money supply is referred to as M3 - which indicates the level (stock) of legal currency in the economy. Besides, the RBI also announces norms for the banking and financial sector and the institutions which are governed by it. These would be banks, financial institutions, non-banking financial institutions, Nidhis and primary dealers (money markets) and dealers in the foreign exchange (forex) market.The Monetary Policy is announced twice a year - a slack season policy (April-September) and a busy season policy (October-March) in accordance with agricultural cycles. These cycles also coincide with the halves of the financial year. Initially, the Reserve Bank of India announced all its monetary measures twice a year in the Monetary and Credit Policy. The Monetary Policy has become dynamic in nature as RBI reserves its right to alter it from time to time, depending on the state of the economy.

RBI MONETARY POLICY 2011-2012 AND ITS IMPACT ON INDIVIDUALS

Savings bank interest rate hiked

This is probably the decision which will have an immediate direct impact on almost every individual. What has been for over 8 years a stagnant rate has today been revised on the higher side. The RBI has increased the interest rate that banks have to pay us on our savings bank deposit to 4% from 3.5%. This will mean you have a little more incentive to keep your money in a savings account. Although, it must be noted that this could be a very temporary measure as the RBI has recently put up a debate for deregulation of these rates. If and when this happens then we could see both positive and negative effects for the common man based on the financial environment.

Repo and Reverse repo rates hiked

The 50 basis points hike in the rates at which RBI lends to banks and at which rate the RBI borrows from banks has meant that banks will have to pay higher interest for the short term funds borrowed from RBI. On a broad spectrum this equal hike in both rates will effectively neutralize the effect. The direct effect on the common man hence will be in the fact that this will help in putting a rein on the ever increasing inflation seen in the last few years.

Bank rate and CRR kept constant The Bank rate (rate at which RBI lends for long
terms to banks) and the Cash Reserve Ratio (amount on money as a percentage of their Net Deposits and Time liabilities) have been kept constant at 6%. This means that the common man can heave a temporary sigh of relief. Though banks may not increase their lending rates for Home loans, Personal loans etc immediately as the rates for these lending are also dependent on the Bank rate and CRR. it could however happen by the end of next month or so.

Changes in Framework for NRIs and PIOs

The RBI as indicated a strong commitment to simplify and streamline procedure relating to foreign exchange transactions by NRIs and PIOs so that there is support for genuine transactions as against the complicated structure in place today.

Relief for borrowers of MFIs

The RBI has clearly stated that the interest rates on loans given by banks to Micro Finance Institutions should be at a rate not more than 26% in case they want to be classified as priority sector loans. There is also a stringent qualifying asset criteria stipulated which will help in ensuring that there is no recurrence of an Andhra Pradesh like scenario repeated.

Net banking and mobile banking

The RBI has shown a strong will to increase the coverage of Internet and mobile based services given by banks and other non-bank entities. Transactions limits have been revised for mobile based transactions, improvement to coverage of NEFT and migrating credit card infrastructure to a system where chip based and pin based cards are expected. Customers of Urban co-operative banks can now jump on to the internet bandwagon as the RBI has proposed to permit scheduled UCBs to provide internet banking facility provided certain conditions are fulfilled.

Repo rate: How RBI's tight money policy will affect real estate sector

The economy and the real estate sector in the country are currently in a state of uncertainty. With chances of default by countries like Greece, Portugal and Ireland high, the global financial markets are in a flux. This has put pressure on Indian economy as well. At the same time, rising inflation in the country has further compounded the problem. The government's and the RBI's tight money policy to contain inflation has only jolted the economic activities in the country further. All these factors are likely to affect the real estate sector adversely in the near future. And, the US debt worries have further added to the uncertainty.

The impending slowdown in the Indian economy by around one percentage point to around 7.5% has affected the mood of investors. "Over the last two months, the Indian real estate market has been beset by reduced growth expectations, and a potential tightening of liquidity squeeze. The real estate sector, in particular, is feeling the heat of the RBI's tight money policy. The increase in the interest rates on home loan by around 3 percentage points in the last one year, from 9% to 12%, has forced buyers to postpone their decision. The central bank has also discouraged banks from lending to developers and builders directly. This has led to reduction in the availability of funds to developers. The reduced availability of funding to the sector is going to impact the execution capability of developers. To contain inflation, the RBI is likely to continue with its tight money policy that has already caused enough damage to the realty sector. Since residential construction accounts for nearly 70% of the activity in the Indian real estate sector, the effect of slow sales in the high-end segment will result in delays in office and retail projects as well, Developers will be under pressure to reduce their debtto-equity ratios. The high interest rates, increase in vacancy and demand slowdown will impact the earnings of developers. A natural consequence will be a slowdown of construction activity, leading to fewer new launches, and also delayed project delivery.

NAME- BERNARD EKKA

ROOM NO- 31

ROLL NO- 385

PROF- MR.C.CHATERJEE

COLLEGE- ST.XAVIERS, KOLKATA