monetary policy

1. Monetary Policy & Inflation

2. What is Inflation ?
 A sustained increase in the general price level of
goods and services in an economy.
 Inflation is typically broad measure , such as the
overall increase in prices or the increase in the
cost of living in country .

3. Important Terms Related To Inflation
 Deflation: is the opposite of inflation when fall in
prices occurs.
 Disinflation: is process of bringing down prices
moderately from their high level.
 Stagflation: is a term in macroeconomics used to
describe a period of high inflation combined with
low incomes, unemployment, or economic
stagnation.

4. Types of Inflation
Demand pull inflation: This represents a situation where
there is increase in Aggregate Demand for resources either
from the government or the entrepreneurs or the
households.
Cost Push inflation: This is because of large increases in
the cost of important goods or services where no suitable
alternative is available. This may happen if the costs
especially wage cost rise.

5. Monetary Policy

6. What is Monetary Policy ?
It is the process by which the central bank
or monetary authority of a country regulates
(i) the supply of money (ii) availability of
money and (iii) cost of money or rate of
interest in order to attain a set of objectives
oriented towards the growth and stability of
the economy.

7. Monetary policy & Inflation
When inflationary pressures build up ,
raise the short-term interest rate (the policy rate)
which squeezes consumption and investment.

8. Monetary Policy Instruments
 Open Market
 Operations Bank rate
 Cash Reserve Ratio

9. Open Market
 OM are the means of implementing
monetary policy by which a central bank
controls the nation’s money supply by
buying and selling government securities,
or other financial instruments.

10. Bank rate
 Rate at which Central Bank lends money to
commercial Banks
 The bank rate signals the central bank's long-term outlook
on interest rates. If the bank rate moves up, long-term
interest rates also tend to move up, and vice-versa.
 Any increase in Bank rate results in an increase in interest
rate charged by Commercial banks which in turn leads to low
level of investment and low inflation

11. Cash Reserve Ratio
 It refers to the cash which banks have to maintain with
RBI as certain percentage of their demand and time
liabilities
 An increase in CRR reduces the cash with commercial
banks which results in low supply of currency in the
market, higher interest rate and low inflation

12. Thank You