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740 monetary policy
- 1. PRESENTATION ON MONETARYPOLICY Submitted to :Prof. Rajwinder kaur Submitted by : Sukhpreet Singh Roll no : 18193740
- 2. MONETARY POLICY • Definition: • MonetaryPolicy refers to the credit control measures adopted by the central bank of a country. • Monetary policy “as policy employing central bank’s control of the supply of money as an instrument for achieving achieves of general economic policy.”
- 3. Ob j ec t ive The following are the principal objectives of monetary policy: Full Employment Price Stability Economic Growth Balance of Payments Exchange Rate Stability Equal Income Distribution
- 4. Full Employment FullEmployment has been ranked among the foremost objectives of monetary policy. It is an important goal not only because unemployment leads to wastage of potential output, but also because of the loss of social standing and self-respect.
- 5. PriceStability One ofthe policy objectives of monetary policy is to stabilize the price level. Both economics and favour this policy because fluctuations in price bring uncertainty and instability to the economy.
- 6. EconomicGrowth One ofthe most important objectives of monetary policy in in recent years has been the rapid economic growth of an economy. Economic growth is defined as “the process where by the real per capita income of a country increases over a long period of time.”
- 7. Balance ofPayments Another objectivesof monetary policy since the 1950 has been to maintain equilibrium in the balance of payments.
- 8. Exchange RateStability: Exchangerate is the price of a home currency expressed in terms of any foreign currency. If the exchange rate is very volatile leading to frequent ups and downs in the exchange rate, the international community might lose confidence in our economy. The monetary policy aims at maintaining the relative stability in the exchange rate.
- 9. Equal Income Distribution: Many economists used to justify the role of the fiscal policy is maintaining economic equality. However in recent years economists have given the opinion that the monetary policy can help and play a supplementary role in attaining an economic equality.
- 10. TYPESOF MONETARY POLICY Monetary policy design changes as per the goals set for the monetary policy and theemerging economic scenario. The monetary policy is characterised as expansionary policy, contractionary policy, counter cyclical policy, rule based policy or discretionary policy. Expansionary Monetary Policy Contractionary Monetary Policy Countercyclical Monetary Policy Rule Based Monetary Policy Discretionary Monetary Policy
- 11. Expansionary Monetary Policy Expansionary or easy monetary policy aims at encouraging spending on goods and services by expanding the supply of credit and money by lowering the policy rates (bank rate or repo rate), lowering the reserve requirements and purchasing the government securities from the market.
- 12. Contractionary Monetary Policy Contractionary or tight monetary policy aims at preventing inflation by contracting the money supply. Contraction in money supply is achieved by increasing the policy rates, increasing the reserve requirements and purchasing the government securities from the market.
- 13. Countercyclical Monetary Policy Countercyclical policy aims at moderating the cyclical fluctuations in the economy and stabilizing the economy around its trend path by following countercyclical measures.
- 14. Rule Based MonetaryPolicy Under rule based policy money supply and related variables are controlled by predetermined rules, norms and standards. The central bank authorities cannot use their discretion to change the values of these variables.
- 15. Discretionary Monetary Policy Discretionary Monetary Policy allows the central bank greater autonomy in the conduct of monetary policy. Under such a policy rather than getting constrained by the pre-set rule, the central banks, after assessing the emerging economic scenario and using its own judgment, can change the values of money supply and the related variables.
- 17. Quantitative Instruments: Bank Rate: Thebank rate, also known as the Discount Rate, is the oldest instrument of monetary policy. Bank rate is the rate at which the RBI discounts – or, more accurately. Open market Operations: open market operations are the means of implementing monetary policy by which a central bank controls its national money supply by buying and selling government securities or other financial instrument.
- 18. Variations in theReserve Requirement The reserve bank also uses the method of variable reserve requirements to control credit in India. By changing the ratio, The reserve bank seeks to influence the credit creation power of the commercial banks. Repo Rate and Reserve Repo Rate • whenever the banks have any shortage of funds they can borrow it from RBI. • Repo rate is the rate at which banks borrow rupees from RBI. • Current repo rate is 8% as on January Variations in the Reserve Requirement Repo Rate and Reserve Repo Rate
- 19. Liquidity Adjustments Facility: Itis a cool, used in monetary policy that allows banks to borrow money through repurchase agreements. This arrangement allows banks to respond to liquidity pressures and is used by governments to assure basic stability in the fanancial markets. Liquidity Adjustments Facility
- 20. Qualitative Instruments Rationing of credit: Credit rationing is a method of controlling and regulating the purpose for which credit is granted by commercial bank. It aims to limit the total amount of loansand advances granted by commercial banks. Margin Requirements: Margin is the difference b/w the market value of a security and its maximum loan value. Marginal requirement of loan can be increased or decreased to control the flow of chart.
- 21. Publicity: RBI uses mediafor the publicity of its views on the current market condition and its directions that will be required to be implemented by the commercial banks to control the unrest. Regulation of Consumer Credit: If there is excess demand for certain consumer durable leading to their high prices, central bank can reduce consumer credit by increasing down payment, and reducing the number of instalments of repayment of such credit. Publicity Regulation of Consumer Credit
- 22. Moral Suasion Moral Suasionmeans persuasion and request. To arrest inflationary situation central bank persuades and request the commercial banks to refrain from giving loans for speculative and non-essential purposes. Direct Action Under the bank regulation the central Bank has the authority to take strict action against any of the commercial bank that refuses to obey the directions given by Reserve Bank of India.
- 23. RECENTTRENDS IN MONETARY POLICY •TheReserve Bank of India, in its monetary policy meet decided to keep the key policy rates unchanged after two emergency rate cuts amid the COVID-19 disruptions and its ensuing economic fallout. Consequently, the repo rate stands unchanged at 4% and the reverse repo rate at 3.35% CRR RATE SLR RATE REPO RATE REVERSE REPO RATE 3 18 4 3.35
- 24.