BANKING LAW AND PRACTICE

Monetary Policies of RBI

SUBMITTED BY SUBMITTED TO
SHAMBHAVI TRIPATHI MR. KSHITIJ KHARE
Content

 Introduction to RBI
 Functions of RBI
 Comparison of RBI with commercial banks
 Monetary policies of RBI
 Tools of Monetary Policy
 Current Monetary Policy
 Introduction to RBI
 RBI is an apex body that controls, operates, regulates and directs the
entire banking and monetary structure of the country.
 It is known as the supreme body as it occupies the top most position in the
monetary and banking system of the country.
 All the financially developed countries have their own central bank.
 India’s central bank is Reserve Bank of India i.e., RBI.
 RBI was establish in April 1,1935 under RBI Act passed in 1934.
 It controls money supply and credit in an economy.
 There is only one central bank in a country which performs several
functions that normal banks cannot perform.
Function of RBI

 Issue of Bank Notes.

 Bankers of Government.
 Custodian of Cash Reserves of Commercial Banks.
 Custodian of Country’s Foreign Currency Reserves.
 Lender of Last Resort.
 Controller of Credit.
 Comparison of RBI with commercial banks
Basis Central Bank Commercial Bank

Meaning It is an apex body that controls, operates, It is an institution which perform the function
regulates and direct the entire banking and of accepting deposits, granting loans and
monetary structure of the country. making investments with the objective of
earning profit.

Status It is the apex institution in the money market. It is merely a unit in the banking structure of
the country and operates under the control
of central bank.

Ownership It is generally owned and governed by the It can be owned and governed by the
government. government or the private sector.

Objective It operates in public interest without profit It aims to maximize profits.

motive.

Issue of currency It has sole monopoly in issue of currency. It has no power to issue currency.

Public Dealing It does not deal directly with the public. It deals directly with public.
Monetary policy of RBI
 Monetary policy is the process by which a central bank (RBI) manages money
supply in the economy. The objectives of monetary policy include ensuring
inflation targeting and price stability, full employment and stable economic
growth.

For example:- Some monetary policy examples detailed in this section of the
report include increases and decreases in the federal funds rate, reductions or
increases in the Federal Reserve balance sheet like payments on SOMA
securities and changes in the required reserve rate for banks.

Monetary policy can be restrictive, accommodative or neutral. When an economy

is growing too quickly and inflation is rising, a central bank can take measures to
cool its economy by raising short-term interest rates, which is a
restrictive monetary policy. Conversely, when the economy is sluggish, a central
bank will adopt an accommodative policy by lowering short-term interest rates to
spur growth and put the economy back on track.
Tools of Monetary Policy
Quantitative tools Basic Qualitative tools
These are the Meaning These instruments are
instruments of the used to regulate the
monetary policy that direction of credit.
effects the overall
supply of money/credit
in the economy.
Traditional method of Alternative name Selective method of
control. control.
(i) Bank Rate Instruments (i) Marginal
(ii) Repo Rate Requirement
(iii) Reverse Repo Rate (ii) Moral Suasion
(iv) Open Market (iii) Selective credit
Operation control
(v) Cash Reserve Ratio
(vi) Statutory Liquidity
Ratio
Current Monetary Policy

 Monetary Policy Report submitted to the Congress on July 5, 2019,

pursuant to section 2B of the Federal Reserve Act.

 The Labor Market.

 Inflation
 Economic Growth
 Financial Condition
 Financial Stability
 International Development
Thank you