2. CD Deshmukh
The First Indian Governor of
Reserve Bank of India (RBI)
Dr. D. Subbarao
Present Governer of
Present Governer of
3. Monetary policy- Meaning
The part of the economic policy which regulates the level of
money in the economy in order to achieve certain
objectives.
In INDIA,RBI controls the monetary policy. It is announced
twice a year, through which RBI,regulate the price stability
for the economy.
1.slack season policy April-September
2.Busy season policy October-March
4. Importance of Monetary Policy
Gross National Product (GNP) = C + I + G + X
Where: C = Private Consumption expenditure
I = Private Investment Expenditure
G = Government Expenditure
X = Net Exports
C, I, X can be influenced by the monetary policy which
can also influence the private consumption and
investment spending and exports and imports.
17. Conclusion
As articulated in the June 16th policy
statement, RBI will continue to maintain
liquidity conditions such that neither surplus
liquidity dilutes the monetary policy stance
nor large deficit chokes off fund flows to
productive sectors of the economy. The
market at present has discounted the rise of
25 bps in interest rates but global concerns
still continue to weigh on the market.
Bank Rateminimum rate at which the central bank provides loans to commercial banksAlso called the discount rate. An increase in bank rate results in commercial banks increasing their lending rates. Changes in bank rate alter the cost of creditCurrent Bank rate 6%Cash Reserve Ratio Certain amount of banks deposits in cash with RBI. This % is cash reserve ratioThe current CRR requirement is 5 per cent. Statutory Liquidity RatioBanks to maintain 24 per cent of their demand and time liabilities in government securities and certain approved securities called SLR securitiesBuying/Selling of securities laid to Harshad Mehta scam(1992)Reposecured short-term (usually 15 days) loan by one bank to another against government securities. The borrower sells the securities to the lending bank for cash, with the stipulation that at the end of the borrowing term, it will buy back the securities at a slightly higher price, the difference in price representing the interest.Current Repo Rate is 5%Reverse Reposame repurchase agreement(as Repo) from the buyer's viewpoint seller executing the transaction would describe it as a 'repo', while the buyer would describe it a 'reverse repo‘Current Reverse Repo rate is 3.5%CAR (Capital adequacy Ratio ):ratio of a bank's capital to its riskNational regulators track a bank's CAR to ensure banks can bear reasonable amount of loss and are complying with statutory Capital requirementscapacity of bank meeting the time liabilities and other risk Risk could be credit risk, operational risk, etcBank's capital is the "cushion" for potential losses, which protect the bank's depositors or other lendersBanking regulators in most countries define and monitor CAR to protect depositors, thereby maintaining confidence in the banking systemCAR is similar to leverageOpen Market Operationsimportant instrument of credit controlRBI purchases/sells securities in open market operations. During inflation, RBI sells securities to remove excess money in the market.During Deflation ,RBI purchases securitiesMoney Supply (M3)total volume of money circulating in the economycurrency with the public and demand deposits (current account + savings account) with the public. four concepts of measuring money supply:M1= currency with the public + demand deposits with the public + other deposits with the public. All coins and notes in circulation, and personal current accounts. M2= M1+ personal deposit accounts + government deposits + deposits in currencies other than rupee. M3= fixed deposits + savings deposits with post office + saving banks + M1Most Popular and known as Broad money conceptInflationInflation refers to a persistent rise in pricesToo much money and too few goodsScarcity of goods and many buyers, push the prices up Deflation is Converse of inflation persistent falling of prices. RBI can take two steps to reduce InflationReduce supply of money Increase interest rates
