Sie sind auf Seite 1von 2

MONETARY POLICY : MONETARY POLICY It is concerned with the changing the supply of money stock and rate of interest

for the purpose of stabilizing the economy at full employment or potential output level by influencing the level of aggregate demand. At times of recession monetary policy involves the adoption of some monetary tools which tends to increase the money supply and lower interest rate so as to stimulate aggregate demand in the economy. At the time of inflation monetary policy seeks to contract aggregate spending by tightening the money supply or raising the rate of return. 13 August 2010 2 GYAN AGNIHOTRI THREE IMPORTANT OBJECTIVES : THREE IMPORTANT OBJECTIVES To ensure the economic stability at full employment or potential level of output. To achieve price stability by controlling inflation and deflation. To promote and encourage economic growth in the economy. 13 August 2010 3 GYAN AGNIHOTRI TOOLS OF MONETARY POLICY : TOOLS OF MONETARY POLICY Bank rate policy Open market operations Changing cash reserve ratio Undertaking selective credit controls 13 August 2010 4 GYAN AGNIHOTRI BANK RATE POLICY : BANK RATE POLICY Bank rate is the minimum rate at which the central bank of a country provides loan to the commercial bank of the country. Bank rate is also called discount rate because bank provide finance to the commercial bank by rediscounting the bills of exchange. When general bank raises the bank rate, the commercial bank raises their lending rates, it results in less borrowings and reduces money supply in the economy. 13 August 2010 5 GYAN AGNIHOTRI LIMITATIONS : LIMITATIONS Well organized money market should exist in the economy. It is not present in India It is use full during the times of inflation but it does not full fill its purpose during the time of recession or depression. 13 August 2010 6 GYAN AGNIHOTRI OPEN MARKET OPERATIONS : OPEN MARKET OPERATIONS It means the purchase and sale of securities by central bank of the country. It is useful for the developed countries. The sale of security by the central bank leads to contraction of credit and purchase there of to credit expansion. 13 August 2010 7 GYAN AGNIHOTRI LIMITATIONS : LIMITATIONS When the central bank purchases the securities the cash reserve of member bank will be increased and vise versa. The bank will expand and contract credit according to prevailing economic and political circumstances and not merely with reference to their cash reserves. When the commercial bank cash balance increase the demand for loan and advance should increase. This may not happen due to economic and political uncertainty. The circulation of bank credit should have a constant velocity. 13 August 2010 8 GYAN AGNIHOTRI CHANGING THE CASH RESERVE RATIO : CHANGING THE CASH RESERVE RATIO The bank have to keep certain amount of bank money with them selves as reserves against deposits. The increase in the cash rate leads to the contraction of credit only when the banks excess reserves. The decrease in the cash rate leads to the expansion of credit and banks tends to make more available to borrowers. 13 August 2010 9 GYAN AGNIHOTRI EXPANSIONARY MONETARY POLICY : EXPANSIONARY MONETARY POLICY Problem: Recession and unemployment Measures: (1) Central bank buys securities through open market operation (2) It reduces cash reserves ratio (3) It lowers the bank rate Money supply increases Investment increases Aggregate demand increases Aggregate output increases by a multiple of the increase in investment 13 August 2010 10 GYAN AGNIHOTRI TIGHT MONETARY POLICY : TIGHT MONETARY POLICY Problem: Inflation Measures: (1) Central bank sells securities through open market operation (2) It raises cash reserve ratio and statutory liquidity (3) It raises bank rate (4) It raises maximum margin against holding of stocks of goods Money supply decreases Interest rate raises Investment expenditure declines Aggregate demand declines Price level falls 13 August 2010 11 GYAN AGNIHOTRI SOURCES OF MONETARY MISMANAGEMENT : SOURCES OF MONETARY MISMANAGEMENT Variable time lags concerning the effect of money supply on the national income. Treating Interest rate as the target of monetary policy for influencing investment demand for stabilizing the economy. 13 August 2010 12 GYAN AGNIHOTRI ROLE OF MONETARY POLICY IN ECONOMIC GROWTH : ROLE OF MONETARY POLICY IN ECONOMIC GROWTH Monetary policy and savings. Monetary policy and investment. Cost of credit.. Monetary policy and public investment. Monetary policy and private investment. Allocation of investment funds. 13 August 2010 13 GYAN AGNIHOTRI MONETARY POLICY OF RBI : MONETARY POLICY OF RBI In recent years starting from the mid-nineties promoting economic growth is being given greater emphasis in monetary policy of RBI. Three sub-periods: Monetary policy of controlled examination(1951-1972). Monetary policy

in the pre-reforms period(1972-1991) . Monetary policy in the post-reforms period(1991-2000). 13 August 2010 14 GYAN AGNIHOTRI MONETARY POLICY OF CONTROLLED EXAMINATION (1951-1972). : MONETARY POLICY OF CONTROLLED EXAMINATION (1951-1972). Reserve banks responsibility in the circumstances is mainly to moderate the expansion of credit and money supply in such a way as to ensure the legitimate requirements of industry and trade and curb the use of credit for unproductive and speculative purposes. To ensure controlled expansion, RBI used the instruments: Changes in bank rate Changes in cash reserve ratio Selective credit control 13 August 2010 15 GYAN AGNIHOTRI MONETARY POLICY IN THE PRE-REFORMS PERIOD(1972-1991) . : MONETARY POLICY IN THE PRE-REFORMS PERIOD(1972-1991) . Price situation worsened during the years of 1972-1974. to contain inflationary pressures RBI further tightened its monetary policy. It is similar to tight monetary policy. 13 August 2010 16 GYAN AGNIHOTRI EASY AND LIBERAL MONETARY POLICY (1996) : EASY AND LIBERAL MONETARY POLICY (1996) Liberal monetary policy adopted for encouraging private sector since 1996. Two instrument for monetary management BY RBI since 1996: Reactivation of bank rate. Repo rate system . 13 August 2010 17 GYAN AGNIHOTRI REPO RATE SYSTEM : REPO RATE SYSTEM It is introduced through which RBI can add to liquidity in the banking system. Through repo system RBI buys securities from the bank and there by provide funds to them. Repo refers to agreement for a transaction between RBI and banks through which RBI supplies funds immediately against government securities and simultaneously agree to repurchase the same or similar securities after a specified time which may be one day to 14 days. 13 August 2010 18 GYAN AGNIHOTRI LIQUIDITY ADJUSTMENT FACILITY(LAF) : LIQUIDITY ADJUSTMENT FACILITY(LAF) It is the another instrument of monetary policy from June 2000 to adjust on a daily basis liquidity in the banking system. Through LAF, RBI regulates short-term interest rates while its bank rate policy serves as a signaling device for its interest rate policy in the intermediate period. 13 August 2010 19 GYAN AGNIHOTRI RBIS ANNUAL POLICY STATEMENT 2005-06 : RBIS ANNUAL POLICY STATEMENT 2005-06 The provision of appropriate liquidity to meet credit growth and support investment and export demand in the economy while placing equal emphasis on price stability. Consistent with the above pursuit of an interest rate environment which is conducive to price stability but at the same time it will maintain the momentum of growth. Consideration of measures in a calibrated manner in response to the evolving circumstances with a view to stabilizing inflationary pressures. These three points is used to meet the requirement of credit for economic growth and also used to check the inflationary expectation and inflationary situation that may arise. 13 August 2010 20 GYAN AGNIHOTRI

Das könnte Ihnen auch gefallen