PRESENTATION

ON
Current monetary policy

Presented By-
Gautam Roy [Roll No. 55]

Tinku Bhoumik [Roll No.

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89]
 Monetary Policy
The term monetary policy refers to actions taken by
central banks to affect monetary magnitudes or other
financial conditions

Monetary Policy operates on monetary magnitudes or

variables such as money supply, interest rates and
availability of credit.

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 Objective of
Monetary Policy

Neutral Money policy

Price stability

Full employment

Exchange stability

Economic growth
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Monetary Magnitudes
 M1 = Currency with public+
Demand deposits with banks+
Other Deposits with RBI
 M2 = M1+ Post Office Deposits
 M3 = M1+ Time Deposits with Banks
 M4 = M3+ Total Post Office Deposits
Instruments
Operation of Monetary
1. Discount Rate
(Bank Rate) Policy
2.Reserve Ratios Operating
Target
3. Open Market
Operations
• Monetary Base
• Bank Credit Intermediate
• Interest Rates Target
•Monetary
Aggregates(M3)
Ultimate
•Long term Goals
interest rates
•Total Spending
• Price Stability
Etc.
Instruments of Monetary Policy
 Variations in Reserve Ratios
 Discount Rate (Bank Rate)
(also called rediscount rate)
 Open Market Operations (OMOs)
 Other Instruments
Variations in Reserve Ratios
 Banks are required to maintain a certain
percentage of their deposits in the form of
reserves or balances with the RBI
 It is called Cash Reserve Ratio or CRR
 Since reserves are high-powered money or
base money, by varying CRR, RBI can
reduce or add to the bank’s required reserves
and thus affect bank’s ability to lend.
 Discount Rate (Bank Rate)
 Discount rate is the rate of interest charged by the central
bank for providing funds or loans to the banking system.
 Funds are provided either through lending directly or
rediscounting or buying commercial bills and treasury
bills.

 Raising Bank Rate raises cost of borrowing by

commercial banks, causing reduction in credit volume to
the banks, and decline in money supply.

 Variation in Bank Rate has an effect on the domestic

interest rate, especially the short term rates.
Open Market Operations (OMOs)
 OMOs involve buying (outright or
temporary) and selling of govt securities by
the central bank, from or to the public and
banks.
 RBI when purchases securities, pays the
amount of money by crediting the reserve
deposit account of the seller’s bank, which
in turn credits the seller’s deposit account in
that bank.
The stance of monetary policy in
2009-10
Ensure a policy regime that will enable credit expansion at viable rates
while preserving credit quality so as to support the return of the economy
to a high growth path.

 Continuously monitor the global and domestic conditions and respond

swiftly and effectively through policy adjustments as warranted so as to
minimise the impact of adverse developments and reinforce the impact of
positive developments

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 Continue ……..
 Maintain a monetary and interest rate regime supportive of
price stability and financial stability taking into account the
emerging lessons of the global financial crisis.

   Over the last several months, the Reserve Bank has been
actively engaged in policy action to minimise the impact of
the global crisis on India.  The policy response of the Reserve
Bank has helped in keeping financial markets functioning in
a normal manner and in arresting the growth moderation.

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 Continue ……..
Bank rate retained at 6.0 percent

. It is proposed to reduce the repo rate under the Liquidity Adjustment

Facility (LAF) by 25 basis points from 5.0 per cent to 4.75 per cent with
immediate effect.

    It is proposed to reduce the reverse repo rate under the LAF by 25
basis points from 3.5 per cent to 3.25 per cent with immediate effect.

The cash reserve ratio (CRR) of scheduled banks has been retained
unchanged at 5.0 per cent of net demand and time liabilities (NDTL).

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Annual inflation rate projection hiked to 8.5 percent from 6.5 percent

 Inflation risk looms larger when viewed in the context of global price
movements

The statutory liquidity ratio (SLR) was reduced from 25.0 per cent of NDTL
to 24.0 per cent.

 Reserve Bank to monitor price situation closely and take further action as
warranted

 Reduction in excess liquidity to help anchor inflationary expectations.

 Continue ……..

Recovery process to be supported without compromising

price stability

Central bank focus now on managing recovery from managing

crisis

There is still uncertainty about pace and shape of global

recovery

Stronger global recovery could prop oil prices sharply

India’s economic growth projection hiked to 7.5 percent from

earlier 6 percent
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 CONTINUE….

 GDP growth is 7.9%,5.8%,8.8%. on year

2009-10, 2008-09, 2003-08..
 Index of industrial production(IIP)
increased to 7.6% on april-nov of 2009
which was 4.1% during the same session
of previous year.

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Cont…
 Service sector contribute 64.5% of the
GDP growth, with 9% of growth during
the year 2009-10. which would be 7%
without the contribution from
community,social & personal services.
 M3 growth was at 16.5% in jan 15, 2010
as against the projection was 17%.

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PRICE SITUATION
 WPI headline inflation
in December 2009 was at 7.3 per cent,
whereas WPI inflation excluding food
articles was 2.1 per cent, which suggests the
concentrated nature of the inflation so far.

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