Introduction of monetary policy
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The document discusses monetary policy in India. It begins by defining monetary policy as the government's policy to control the quantity, cost, and use of money in the country. It notes that the first monetary policy committee in India was established in 1982 under Professor Sukhamoy Chakraborty to promote price stability and economic growth. The major tools of India's monetary policy are described as quantitative tools that impact the economy, qualitative tools related to specific sectors, and other methods like the bank rate, repo rate, reverse repo rate, and marginal standing facility rate which the Reserve Bank of India uses to control money supply and inflation.
Introduction of monetary policy
- 1. Re Ready4Compliance 1 Monetary Policy 1. What is Monetary Policy? The monetary policy is the policy of the government or central government where controls the quantity of money, cost of money, and use of money in the country. 2. What the role of this policy in any developing country? There are two primary roles of this policy in any developing country, first is to promote the economic development and other is stability the prices. 3. Which was the first committee on Monetary policy in India? On December, 1982 under the Chairmanship of Prof. Shree SUKHAMOY CHAKRABORTHY. He was an economist and professor at Delhi University. He believed that price stability was essential for promoting growth and achieving other social objectives. 4. What is the tool of Monetary Policy in India? I. Quantitative Tools : impact on economy II. Qualitative Tools : related to specific sector Margin Margin against collateral, borrowing less if margin is increased, and vice versa. Regulatory pressure RBI, convinces the bank to keep money in government securities. Selective Credit Control RBI can give instructions to the bank regarding not provide the loan to specific industries. CRR= 3% SLR= 18%
- 2. Re Ready4Compliance 2 III. Other methods: a. Bank Rate: - Bank Rate is an Interest Rate - RBI can decrease or increase the bank rate, to control the money supply - Increase in Bank Rate -----increase in lending rate of banks - Decrease in Bank Rate ---- decrease in lending rate of bank. b. REPO Rate : * Repurchase agreement : - Collectral – Government Securities (Sale of securities) - Later buy Condition - Pre- Defined time - Control the inflation and money supply - Dircetly connected with big amount loan, (Like housing loan) c. Reverse Repo Rate: - Reversal of Repo Rate - RBI borrow money from banks - To manage cash flow - Always lower than repo rate (Repo Rate – 1) - Transfer money from one account to another d. Marginal Standing Facility Rate (MSF) : - Schedule commercial banks can borrow funds from RBI. - Overnight necessity. - This will be approved against the govermnet securities of SLR quota (Excess) up to a certain precenatge of their net demand and time liabilities. - Banks having current Accounts and Subsidiary General Ledge(SGL) with RBI. - RBI have descreationary power. Banks Lend long- term fund RBI RBI on repurchase agreement* borrow- Shortterm fund Bank Bank Rate 4.65% Repo Rate – 4.40% Reverse Repo Rate = 3.75% MSF= 4.65%
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