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Main Functions
1. Monetary Authority Formulates, implements and monitors the monetary policy. Objective: maintaining price stability and ensuring adequate flow of credit to productive sectors.
2. Regulator and Supervisor of Financial System Prescribes broad parameters of banking operations within which the country's banking and financial system functions. Objective: maintain public confidence in the system, protect depositors' interest and provide cost-effective banking services to the public.
3. Manager of Foreign Exchange Manages the Foreign Exchange Management Act, 1999. Objective: to facilitate external trade and payment and promote orderly development and maintenance of foreign exchange market in India. 4. Issuer of Currency Issues and exchanges or destroys currency and coins not fit for circulation. Objective: to give the public adequate quantity of supplies of currency notes and coins and in good quality.
5. Development Role Performs a wide range of promotional functions to support national objectives.
6. Other Functions Banker to the Government: performs merchant banking function for the central and the state governments; also acts as their banker. Banker to banks: maintains banking accounts of all scheduled banks.
Monetary Policy
Regulation of supply of Money and Cost and Availability of Credit in the economy Purpose of Monetary Policy Maintain price stability, ensure adequate flow of credit to the productive sectors of the economy and overall economic growth
Variables affected by Monetary Policy in the economy Interest Rates Money Supply Credit Availability Exchange Rates Inflation Rate
Primary objective of BFS is to undertake consolidated supervision of the financial sector comprising commercial banks, financial institutions and nonbanking finance companies.
Open Market Operations (OMO) Purchase and sale of securities in the open market
Key changes
Key changes in 90s 1. Macroeconomic (national output & income, interest rate, inflation rate, exchange rates) and price stability received greater emphasis. 2. Switched to multiple indicator approach. 3. Abolished sector-specific interest rates. 4. Ceiling on rates on deposits removed. 5. CRR and SLR reduced
-Savings
-Investment
Monetary Policy
Changes money supply and Interest rates
Aims for Price Stability, Full employment and Economic growth RBI responsibility for formulation & implementation
Fiscal Policy
To overcome recession and Inflation
Changing demands by changes in Govt. spending & Taxes Government showcases this during Annual Union budget
Goals of RBI
Maintain reserves and Secure monetary stability.
Repo Rate is increased by 25 bp to 5.75 per cent Reverse Repo Rate is hiked by 50 bp to 4.50 per cent
According to RBI, private consumption and investment demand will be the two major drivers of growth during 2010-11.
Monetary policy intended to inflation and anchor inflationary expectations and respond to any further build-up of inflationary pressures
Rate hike will help maintain financial conditions conducive to sustaining growth RBI will undertake mid-quarter reviews in about 45 days after each quarterly review Next mid-quarter reviews will be in September, December and March Second quarter review of monetary policy on November 2, 2010
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