Monetary Policy

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

 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.
 OBJECTIVES
∫ Economic Growth

∫ Full Employment

∫ Flow of credit in all sectors of economy

∫ Price Stability
Exchange rate stability

Equilibrium in balance of payments

Greater equality in the distribution

of income and wealth
 ELEMENTS
OF
MONETARY
POLICY

Qualitative Quantitative
Measures Measures
 Quantitative measures
 Bank rate
 Open market operations
 Cash reserve ratio (CRR)
 Statutory liquidity ratio (SLR)
 Qualitative Measures
Ω Rationing of credit
Ω Moral Suasion
Ω Direct Action
Ω Regulation in consumer credit
Ω Changes in margin requirements
 IF :
Bank Rate CRR/SLR

Bank Rate CRR/SLR

 LIMITATION OF MONETARY
POLICY
‡ Non-monetized sector
‡ Non-banking financial institution
‡ Unorganized financial markets
¤ Higher liquidity
¤ Non-appearance of money
¤ Time tag
¤ Lack of coordination between monetary and fiscal policy
 Current Rates
Inflation • 5.71%

Bank Rate • 6.75%

CRR • 4.00%

SLR • 21%

Repo Rate • 6.25%

Reverse Repo Rate • 5.75%

Re/$ • 68.16%