A presentation done as a part of the course industrial Economics and Telecom Regulation during Semester 6 of the 4 year under graduate degree course in engineering This presentation describes all the aspects related to the Monetary policies adopted by the Reserve bank of India(RBI)

2. • Meaning of Monetary Policies :
Introduction
Definitions
• Objective of Monetary Policies(with ref to RBI) :
Rapid Economic Growth
Price Stability
Exchange Rate Stability
Balance of Payments (BOP) Equilibrium
Full Employment
Neutrality of Money
Equal Income Distribution

3. • Features & Instruments of Monetary Policy
- Quantitative & Qualitative Tools:
Qualitative:
Bank Rate Policy (BRP)
Open Market Operation (OMO)
Variation in the Reserve Ratios (VRR)
Quantitative:
Fixing Margin Requirements
Consumer Credit Regulation
Publicity

4. Part 1 : Meaning of Monetary Policies

5. Monetary Policy
RBI’s Credit
management
Policy
Credit Policy
1.1 Introduction

6. Supply
of Money
Viability
of Money
Ratio of
Interest
How Much Should Be the :
Monetary Policies Addresses the Following Questions:-

7. 1.2 DEFINITIONS OF MONETARY POLICIES
According to Prof. Harry
Johnson,
"A policy employing the central
banks control of the supply of
money as an instrument for
achieving the objectives of
general economic policy is a
monetary policy."
According to A.G. Hart,
"A policy which influences the
public stock of money
substitute of public demand for
such assets of both that is
policy which influences public
liquidity position is known as a
monetary policy."

8. Part 2: Objectives of Monetary Policy

9. “ Objectives of Monetary Policies are similar to the objectives of five year plan ”
In a nutshell , Planning in India aims at
Growth, Stability and Social Justice.
Objectives
Rapid
Economic
Growth
Price
Stability
Exchange
Rate
Stability
Balance of
Payments
Equilibrium
Full
Employment
Neutrality
of Money

10. 2.1 Brief Overview of the Objective of
Monetary PoliciesRapidEconomicGrowth
• Most
Important
objective.
• Control of
Interest Rate
• Maintaining
Income and
Price Stability
PriceStability
• Inflation and
Deflation
• To keep
Money value
Stable
• Reduces
Wealth and
economic
Insecurities
ExchangeRateStability
• House Currency
expressed in
terms of Foreign
Currency
• Extremely
Volatile
• Maintaining
relative stability
in the exchange
rate

11. BalanceofPaymentEquilibrium(BOP)
• Developing
Countries like
India face
Disequilibri-
um of BOP
• Monetary
Policies Tries
to maintain
Equilibrium
• BOP Surplus
and BOP
Deficit
FullEmployment
• Absence of
Involuntary
Employment
• Monetary
policy is
expansionary
then credit
supply can be
encouraged
• Helps in
Creating Jobs
EqualIncomeDistribution
• Monetary policy
can help and play a
supplementary role
in attainting an
economic equality
• Monetary policy
can make special
provisions
• Monetary policy
can help in
reducing economic
inequalities among
different sections
of society.
2.1 Brief Overview of the Objective of
Monetary Policies(Contd.)

12. Part 3 :Features & Instruments of Monetary
Policy - Quantitative & Qualitative Tools

13. 3.1 Features & Instruments of Monetary
Policy - Quantitative & Qualitative Tools
• The instrument of monetary policy are tools or
devise which are used by the monetary authority in
order to attain some predetermined objectives.
There are two types of instruments of the monetary
policy:
Quantitative Instruments or General Tools
Qualitative Instruments or Selective Tools

14. 3.2 Quantitative Instruments or
General Tools
Bank Rate Policy(BRP)
Open Market Operation(OMO)
Variation in the Reserve Ratios (VRR)

15. BankRatePolicy(BRP)
• Used for Influencing
the volume or
quantity of credit in
the Economy
• The standard rate at
which the bank is
prepared to buy or
rediscount bills of
exchange or other
commercial paper
eligible for
purchase under the
RBI Act
OpenMarketOperation(OMO)
• Buying and selling
of Securities by the
RBI to maintain
supply of money in
the Economy
• Reducing
Purchasing Power
during Inflation by
selling
• During Recession
or Depression
buying securities to
supply money
VariationintheReserveRatios(VRR)
• Cash Reserve
Ratio(CRR) and
Statutory Liquidity
Ratio(SLR)
• CRR – 3-15%
SLR- 25-40%
• VRR=CRR+SLR
• Brings about
change in cash
reserves thus
affecting
commercial banks
lending capacity.
3.2 Quantitative Instruments or
General Tools

16. 3.3 Qualitative Instruments or
Selective Tools
Fixing Margin Requirements
Consumer Credit Regulation
Publicity

17. FixingMarginRequirements
• Refers to the
proportion of loan
amount not
financed by the
bank
ConsumerCreditRegulation
Publicity
3.3 Qualitative Instruments or
Selective Tools
• This method is used
to encourage credit
supply for the needy
sector and discourage
it for other non-
necessary sectors.
This can be done by
increasing margin for
the non-necessary
sectors and by
reducing it for other
needy sectors
> Under this method,
consumer credit supply
is regulated through
hire-purchase and
installment sale of
consumer goods
> the down payment,
installment amount, loan
duration, etc is fixed in
advance.
> This can help in
checking the credit use
and then inflation in a
country.
>Central Bank (RBI)
publishes various
reports stating what is
good and what is bad in
the system.
> This published
information can help
commercial banks to
direct credit supply in
the desired sectors.
>Through its weekly and
monthly bulletins, the
information is made
public and banks can
use it for attaining goals
of monetary policy.