A PROJECT ON

AND ITS ROLE TO CONTROL INFLATION

Origins of the Reserve Bank of India

1926: The Royal Commission on Indian Currency and Finance recommended creation of a central bank for India. 1927: A bill to give effect to the above recommendation was introduced in the Legislative Assembly, but was later withdrawn due to lack of agreement among various sections of people. 1933: The White Paper on Indian Constitutional Reforms recommended the creation of a Reserve Bank. A fresh bill was introduced in the Legislative Assembly. 1934: The Bill was passed and received the Governor Generals assent 1935: The Reserve Bank commenced operations as Indias central bank on April 1 as a private shareholders bank with a paid up capital of rupees five corer (rupees fifty million). 1942: The Reserve Bank ceased to be the currency issuing authority of Burma (now Myanmar). 1947: The Reserve Bank stopped acting as banker to the Government of Burma. 1948: The Reserve Bank stopped rendering central banking services to Pakistan. 1949: The Government of India nationalised the Reserve Bank under the Reserve Bank (Transfer of Public Ownership) Act, 1948.

Management Of The Bank

Central Board consist of 20 Members It consists the following
One Governor and four Deputy Governors Four directors for four local boards Ten Directors representing business, industry, and cooperation's One official nominated by GOI

There are four local boards Branches at 27 location in India

Organization Structure

Board Of Directors

Functions of RBI
Monetary Functions: 1. Note Issue 2. Banker to the Government 3. Bankers bank and lender of last resort 4. Custodian of Foreign Reserves 5. Controller of Credit Non Monetary Functions: 1. Supervisory Functions 2. Promotional Functions

Other Functions
Currency Management Financial Regulation & Supervision Foreign Exchange Reserves Management Market Operations Payment & Settlement Systems Policy Research & Data Dissemination

Departments of RBI
1. Banking Department i) Public Accounts Department ii) Public Debt Office iii) Deposit Accounts Department iv) Securities Department 2. Issue Department 3. Central office Department

What is Inflation
Inflation is the supply of excess of money & credit relative to the goods & services produced resulting in increased prices. In short inflation results in the increase in the price of some set of goods & services in a given economy over a period of time.

Steps taken by RBI for controlling Inflation

1. 2. 3. 4. Rise in Repo Rate Rise in Reverse Repo Rise in CRR Reduction In rate of Interest

Besides this another major step taken by RBI was to stop buying dollars in the international market and hence allow the rupee to rise against the dollar.

Latest Key Policy Rates Change

Particular Bank Rate Previous 9.5% Now 9%

Repo Rate
Reverse Repo Rate CRR SLR

8.50%
7.50% 5.50% 24%

8%
7% 4.75% 23%

Views of Chief Economic Advisor & Governor of RBI

Chief Economic advisor Kaushik Basu & RBI governor D Subbarao discussed macro economic demand management, the relation between price rise and growth as well as the RBI role in controlling inflation. Basu also agreed with the central banks views and said that in the long run there is no conflict between the objectives of high growth and low inflation. In the short run, lowering inflation can have a dampening effect on growth, as the traditional philips curve analysis suggests.

Diagram of Traditional Philips Curve