MONETARY POLICY

Presented by: Varun Rijhwani

A BIRDS EYE VIEW
Introduction
Regulatory Body
Objectives of Monetary Policy
Instruments of Monetary Policy
Indias Monetary Policy
Limitations and Effectiveness of Monetary Policy
INTRODUCTION
Monetary policy refers to the action
taken by the monetary authorities to
control and regulate the demand for
and supply of money with a given
purpose.

Essentially a programme of
action undertaken by the
monetary authorities, generally
the central bank, to control and
regulate the supply of money
with the public and the flow of
credit with a view to achieving
predetermined macroeconomic
goals
REGULATORY BODY:
THE RESERVE BANK OF
INDIA
CD Deshmukh
The First Indian
Governor of RBI
Dr. Raghuram Ranjan
Present Indian
Governor of RBI
OBJECTIVES OF MONETARY POLICY
INSTRUMENTS OF MONETARY POLICY
Quantitative or
General Methods
Qualitative or
Selective Methods
INSTRUMENTS OF MONETARY POLICY
Quantitative or General
Methods
Influence the total volume of credit
without regard for the purpose
for which the credit is put. Methods
include:
Bank Rate Policy
Open Market Operations
The Repo Rate
Cash Reserve Ratio
Statutory Liquid Ratio
Qualitative or Selective
Methods
Regulate the flow of credit into
particular directions of the
economy. Methods include:
Margin Requirements
Moral Suasion
Rationing of Credit
Quantitative or General Methods
Rate at which a
central bank
gives credit to
the commercial
banks.
Bank rate
policy
The central bank
buys and sells
government
securities in the
open market
Open market
operations
Rate at which the
reserve bank
lends money to
commercial banks
in case of any
shortfall of funds
The Repo
Rate
Minimum
percentage of the
deposits of
commercial banks
with the central
bank as cash
reserve
Cash reserve
ratio
Liquid assets of
commercial banks
as a minimum
percentage of
their total
deposits
Statutory
Liquid Ratio
Qualitative or Selective Methods
M
a
r
g
i
n

R
e
q
u
i
r
e
m
e
n
t
s

Percentage of
down payment
on borrowings
M
o
r
a
l

S
u
a
s
i
o
n


Persuasion,
request, and
appeal by the
central bank to
the member
banks to expand
or contract
credit, as the
situation
demands.
R
a
t
i
o
n
i
n
g

o
f

C
r
e
d
i
t

Reserve Bank
fixes credit
quota for
member banks.
INDIAS MONETARY POLICY: A CURSORY GLANCE
Particulars Current Rate
Bank Rate 9.0%
CRR 4.0%
SLR 23%
Repo Rate 8.0%
Reverse Repo Rate 7.0%
Re/$ 59.18 (as on 30
th
May,
2014)
9%
4%
23%
8%
7%
Current Rates
Bank Rate
CRR
SLR
Repo Rate
Reverse Repo Rate
Source: www.rbi.org.in
THE LIMITATIONS AND EFFECTIVENESS OF MONETARY
POLICY
The effectiveness of monetary policy depends on the following factors:

The Time Lag
Problems in Forecasting
Growth of Non-banking Financial
Institutions
Underdeveloped Money and Capital
Markets
Thank you.