Monetary Policy.

LEARNING OUTCOMES

Understand the concept of monetary policy and its importance.

Objective of Monetary Policy.

To know about the different Instrument and types of Monetary policy.

 Monetary policy in India. And developing Countries.

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Concept.
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Objective.

 Growth with social justice (equitable distribution of income and wealth).

 Price stability.

 Exchange rate stability.

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Instruments of Monetary policy.

 Repo Rate. Statutory Liquidity Ratio.

Reverse Repo Rate. Open Market Operation.

Cash Reserve Ratio. Marginal Standing Facility.

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Repo Rate.

 An agreement between Banks with the RBI to repurchase the pledged

government securities at a future date at a pre determined price.

 Generally for 2 weeks.

 Direct relationship with cost of borrowing and Economy.

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Reverse Repo Rate.

 Short term source of earnings for the banks.

 Generally funds are held for 45 to 90 days.

 Direct relationship with liquidity in the market.

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Cash Reserve Ratio.

 A fraction of the total deposit to be held in liquid form

with the bank/deposit with RBI. Current CRR is 3%.

 Decided by Monetary policy Committee bi-monthly.

 No Interest is earned on the same.

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Statutory Liquidity Ratio.

 A portion invested with government securities/gold. Current SLR is 18%.

 Failing to maintain SLR banks are liable for penalty.

 Imposed by RBI to control banks credit.

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Open Market Operations.

 Auction trading.

 Fixed rate and Variable rate Auction.

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Marginal Standing Facility.

 Borrowing from RBI.

 Generally 25 basis point above Repo rate.

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Marginal Standing Facility.

 Borrowing from RBI.

 Generally 25 basis point above Repo rate.

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Monetary Policy.

Monetary Policy.

Expansionary Contractionary
Monetary policy. Monetary policy.
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Role of Monetary Policy.

 As per the counties economic development, monetary policy and is created and
executed.

 Controlling Inflation.

 Improve the banking system and credit policy.

 Check and control the countries unorganised money and capital market.
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Recap .

Concept
Objective of Instruments Types of
and
M.P. of M.P. M.P
Importance.

M.P in
developing
countries.
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Food For thought.

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Q&A.
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End of Pack

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