Monetary Policy

• Definition
It is the process by which monetary authority
of a country controls the supply of money
often targeting a rate of interest for the
purpose of promoting economic growth &
stability.
 Objectives
• To maintain price stability and ensure
adequate flow of credit to productive sectors
of the economy.
• Stability for national currency(considering
prevailing economic conditions)
• Growth in employment & income
 Who makes it?
• RBI announces norms for the banking
and financial sector and the institutions
which are governed by it. These would
be banks, financial institutions, non-
banking financial institutions,
primary dealers (money markets) and
dealers in the foreign exchange (forex)
market
When is the monetary policy announced?

• It is announced twice a year- a slack season

policy (April-Sept) and a busy season policy
(Oct-March) according to agricultural cycles.
• It is dynamic in nature as RBI reserves the right
to alter it from time to time depending to the
state of the economy.
• Since 98-99 RBI has moved in for just one policy
in April end. But review takes place later in the
year.
 Types of monetary policy
1)Expansionary policy- increases the total
supply of money in the economy, It is
traditionally used to combat unemployment in a
recession by lowering interest rates.

2)Contractionary policy-decreases the total

money supply. It involves raising interest rates in
order to combat inflation.