Inflation

Inflation is the rising price of goods and services

over time. It's an economics term that means
you have to spend more to fill your gas tank, buy
a gallon of milk or get a haircut. Inflation
increases your cost of living.
Effect of Interest rate on Inflation
DEFLATION
 Objectives of Monetary Policy
• Economic growth
• Increase in employment
• Price stability and inflation control
• Exchange rate stability
• Balance of payments equilibrium
• Reducing income inequality
Demonetization pulls down India GDP growth
rate to 6.1% in Q4 2016-17
 Instruments of Monetary Policy
All the categories of monetary policy can be
categorized under two categories
Quantitative Measure: Bank rate, Repo rate,
Reverse Repo rate, CRR, SLR, Open market
Structure
Qualitative Measure: Credit Rationing, change
in margin requirements, direct controls.
(As per RBI’s Fifth bi-monthly Monetary Policy Statement for
2017-18 announced on 6th December, 2017)

Repo Rate 6.00%

Reverse Repo Rate 5.75%

Bank Rate 6.25%

Marginal Standing Facility (MSF) Rate 6.25%

Cash Reserve Ratio (CRR) 4.00%

Statutory Liquidity Ratio (SLR) 19.50%

 REPO RATE
Repo rate is the rate at which the RBI lends to
short-term money to the banks against
securities. When the Repo rate increasing
borrowing from RBI becomes more expensive.
 Open Market Operations
• Buying and selling government securities by
the RBI in the open market is called open
market operations.
• When RBI buys government securities the
money supply increases.
• When RBI sells government securities the
money supply decreases.
 Qualitative Measures
• It is also called as the selective credit controls since
these policies affect only certain aspects
• Credit rationing is controlling the amount of credit
available for certain industrial sectors in order to
ensure that all sectors get adequate amount of
credit.
• Change in margin requirement affects the minimum
amount of money that an individual is required to
use from his own resources when he borrows money
form bank
 Fiscal Policy

Fiscal policy is the part of government

policy which is concerned with raising revenue
through taxation and other means and deciding
on the level pattern of expenditure with a view
to correct the situations of excess demand or
deficit demand in the economy.