2. Content
•Introduction.
•RBI & it’s role.
•Types of Monetary Policy.
•Tools of Monetary Policy.
•Current Monetary policy of India.
•Analysis & Conclusion.
3.
4. What Is Fiscal Policy?
Any decision to change the level,
Composition or timing of Govt.
expenditure or to vary the burden, the
structure or frequency of tax payment is
fiscal policy. –G.K Shaw
The Goal : Reduces the rate of inflation
and stimulates economic growth in a
period of recession.
5. What is Monetary Policy?
Monetary policy refers to the use of
instruments under the control of the RBI
regulate the availability, cost and use of
money and credit.
The Goal : achieving specific economic
objectives, such as low and stable
inflation and promoting growth.
6. Reserve Bank of India
The reserve Bank of India (RBI) is the
central banking system of India and
Controls the Monetary Policy of the
Rupee. The institution was established on
1 April 1935 and plays an important part in
the development strategy of the
Government. The first Governor of RBI
was Osborne Smith. At present, the
position is being held by Dr. Urjit Patel. He
took over the position from Dr. Raghuram
Rajan on 4th September 2016.
409.366 billion
7. Role of RBI
Banker to banks.
Issuer of currency.
Development functions.
India’s monetary authority.
Supervisor of financial system.
Manager of foreign exchange reserves.
Banker and debt manager to
Government.
Research, data and knowledge sharing
since 83 years.
8. Types of Monetary Policy
There are 2 types of Monetary Policies:
Expansionary Monetary policy.
(It is used during recession.)
Contractionary Monetary Policy.
(It is used during Inflation.)
9. Expansionary Monetary
Policy
It is when RBI uses its tools to expand
the economy by increasing the money
supply and lowering interest rates which
increases aggregate demand. That
boosts economic growth as measured
by Gross Domestic Product (GDP).
Recession is a temporary period of
economic decline during which trade
and industrial activity are reduced.
10. Contractionary Monetary
Policy
In this RBI uses a set of tools that slow
down the growth rate of the economy to
prevent it from overheating , these tools
includes the credit flow in the economy,
interest rate and currency exchange.
Inflation is continuous increase in the
price level of goods and services. And
increase in supply of money as
compared to some benchmark.
11.
12. Quantitative Measures
Open Market Operations (OMO)
RBI sells or buys government securities or
bonds in open market depend upon -it
wants to increase the liquidity or reduce it.
Rates and Ratios
The policy rate is the key lending rate of
the central bank in a country. A change in
the policy rate alters all other short term
interest rates in the economy, thereby
influencing the level of economic growth
and inflation.
13. Open Market Operations
The sale of govt. bonds and securities
effect both demand and supply of credit.
Supply of Credit :- The Govt. bonds are
bought by Buyers in favour of the central
bank. So this reduces total deposits with
the commercial bank and their cash
reserve.
Demand for Credit :- Selling of Bonds by
Central Bank, Reduces demand for
credit. So this increases total deposits
with the commercial bank and their cash
14. Rates and Ratios
Rates and Ratios are fixed by the Govt. to
have control over Money in an economy.
Different rates prevalent in
India
1. Call Money Rate(CMR)- The rate at
which commercial banks borrows
money from other commercial banks
for a short period.
Recently after the budget CMR was set
at 5.88% as on 9 Feb 2018.
Last budget placed it at 6.05% on 10
Feb 2017.
15. 2. Repo rate- the interest at which RBI
provides loan to commercial banks is
called Repo rate.
A reduction in the repo rate will help
banks to get money at a cheaper rate.
When it increases, borrowing from RBI
becomes more expensive.
The repo rate transactions are for a
very short duration.
It denotes injection of liquidity.
RBI has reduced this rate from 6.25%
as last year to 6.00% as on 9 Feb
2018 to inject liquidity in the market.
16. 3. Reverse Repo Rate- The rate at which
RBI takes short term credit is Reverse
Repo rate.
Reverse Repo Rate is an arrangement
for a short term on a specified date.
RBI uses this tool when there is to much
liquidity in the banking system.
These are also for a very short duration.
Reverse Repo Rate has not changed
since last year and is stagnant at 5.75%
17. 4. Deposit/Bank rate- It is the rate at
which the Reserve Bank is ready to buy
or rediscount bills of exchange or other
commercial papers.
A fall in Bank Rate- Expansionary
Monetary Policy.
A rise in Bank Rate- Contractionary
Monetary Policy.
RBI has brought it down from 6.75% as
last year to 6.25% on 9 Feb 2018.
18. 5. CRR- All commercial banks are required
to keep a certain amount of its deposits
in cash with RBI. This percentage is
called the CRR or Cash Reserve Ratio.
CRR is used to
To prevent shortage of cash.
To control Money supply.
In Contractionary policy the RBI raises
the CRR.
In Expansionary policy RBI reduces the
CRR.
As on 9 Feb 2018 RBI placed CRR at
4.0% with no change to previous year.
19. 6. SLR- The minimum percentage of
deposits that the bank has to maintain
in the form of Gold, Cash or other
approved securities is known as
Statutory Liquidity Ratio.
This measure was undertaken to
prevent the commercial banks to
liquidate their liquid assets when CRR
is raised.
RBI had SLR as high as 20.50% last
year but this year as on 9 Feb 2018 is
19.50%
20.
21. Current Monetary
Policy
Ratios
(Per cent)
Item
2017 2018
Feb. 10 Jan. 12 Feb. 9
1 2 6
Ratios
Cash Reserve Ratio 4.00 4.00 4.00
Statutory Liquidity Ratio 20.50 19.50 19.50
Cash–Deposit Ratio 4.70 .. 4.54
Credit–Deposit Ratio 74.42 .. 74.39
Incremental Credit–Deposit Ratio 148.85 .. 120.19
Investment–Deposit Ratio 30.75 .. 30.80
Incremental Investment–Deposit Ratio 156.38 .. 111.35
23. Analysis of Current Monetary
Policy
Urjit Patel: “the monetary policy
decisions need to be "forward- looking"
and cannot be taken on the basis of
day-to-day inflation rates.”
In its policy review meet, RBI said it is
expecting retail inflation to rise to 5.1
per cent in the last quarter of the
ongoing fiscal due to rising crude oil
prices and hike in salary components of
government employees.
24. The Reserve Bank is expected to be in
wait-and-watch mode in the near term,
and is likely to maintain status quo,
through the first half of this year.
All but two of 60 economists in a
Reuters poll predicted the repo rate
would be kept on hold at its lowest level
since November 2010.
According to the minutes of the
December 6 policy meeting, despite
upside risks to inflation, most MPC
members voted for a pause because of
growth concerns.
25. OUR ANALYSIS
We think they have tried to maintain a
fine balance between the highs and the
lows, its a fairly neutral policy.
Expectations that oil prices will come
down and if monsoons don't surprise
negatively, then we do expect the
second half is going to see more
moderation in inflation after peaking
towards 5.6 or 5.8 % in the first half of
the calendar year.
Keeping that trajectory in mind, we are
not looking at a rate hike this year
