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Monetary Policy
Set of policies by the monetary authority (Central Bank) which regulates the money supply and credit flows in the economy in order to achieve certain macroeconomic goals are called the monetary policy. In India, RBI plays the role of central bank and decides the monetary policy.
Bank rate
Bank rate is the rate at which RBI lends money to the commercial banks. Increase in bank rate is likely to increase all other interest rates and decrease the total money supply. This is a type of contractionary monetary policy. Decrease in bank rate is likely to decrease all other interest rates and increase the total money supply. This is a type of expansionary monetary policy.
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SLR
SLR stands for Statutory liquidity ratio. Banks are supposed to maintain a minimum percentage of their total deposits as a sum of excess reserve (ER), cash balance with other banks (CB) and government securities(GS). That percentage is called SLR.
SLR =
Repo rate
Repo means repurchase operations. The rate at which the RBI lends money to banks against the government securities with the repurchase agreement in future is called repo rate. When the repo rate increases it becomes costly for banks to borrow from RBI and the money supply decreases, it is a type of contractionary monetary policy. The decrease in repo rate will increase the money supply and it is a type of expansionary monetary policy.
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Qualitative measures-1
It is also called the selective credit controls since these policies are going to affect only certain selected parts. Credit rationing is controlling the amount of credit available for certain sectors in order to ensure that all sectors get adequate amount of credit. Change in margin requirements is going to affect minimum amount of money that an individual is required to use from his own resources when he borrows money from the bank.
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Qualitative measures-2
Moral suasion is a method used by RBI like persuading and convincing the banks to undertake certain actions in the economic interests of the country. When all methods prove ineffective, RBI can take direct actions by clearly specifying the way in which banks have to operate.
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Fiscal policy
Fiscal policy is about deciding how the government is going to get the money (taxes, borrowing, printing new money) and where it is going to spend the money keeping in mind certain economic goals. Budget of the government shows the fiscal policy for the concerned year in a concise manner.
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