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PRESENTATION

ON

Current monetary policy

Presented By-

Gautam Roy [Roll No. 55]

Tinku Bhoumik [Roll No. 89]

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The term monetary policy refers to actions taken by

central banks to affect monetary magnitudes or other

financial conditions

Monetary Policy

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

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Operation of Monetary

Policy

Instruments

1. Discount Rate

(Bank Rate)

2.Reserve Ratios

3. Open Market

Operations

Operating

Target

Monetary Base Bank Credit

Interest Rates

Intermediate

Target

Monetary

Aggregates(M3)Long term

interest rates

Ultimate

Goals

Total Spending

Price Stability

Etc.

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Instruments of Monetary Policy

Variations in Reserve Ratios

Discount Rate (Bank Rate)

(also called rediscount rate)

Open Market Operations (OMOs)

Other Instruments

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Variations in Reserve Ratios

Banks are required to maintain a certainpercentage 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 orbase money, by varying CRR, RBI canreduce or add to the banks requiredreserves and thus affect banks ability tolend.

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Discount Rate (Bank Rate)

Discount rate is the rate of interest charged by the centralbank for providing funds or loans to the banking system.

Funds are provided either through lending directly orrediscounting or buying commercial bills and treasury

bills.

Raising Bank Rate raises cost of borrowing bycommercial banks, causing reduction in credit volume tothe banks, and decline in money supply.

Variation in Bank Rate has an effect on the domesticinterest rate, especially the short term rates.

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Open Market Operations (OMOs)

OMOs involve buying (outright ortemporary) and selling of govt securities by

the central bank, from or to the public andbanks.

RBI when purchases securities, pays theamount of money by crediting the reserve

deposit account of the sellers bank, whichin turn credits the sellers deposit account inthat bank.

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The stance of monetary policy in

2009-10

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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 anormal manner and in arresting the growth moderation.

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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 ..

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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

Indias economic growth projection hiked to 7.5 percent from

earlier 6 percent

Continue ..

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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, 2010as 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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