Bank rates and its implication on Indian economy

The project report deals with the bank rates and its consequences on Indian economy .These rates are form the basis for development of economy directly and indirectly

Research methodology• The research has been done using secondary sources:

1. Internet 2. Fortnight journals 3. Newspapers and magazines..4. Books of senior secondary and graduation to clear

concepts.5. The research has been done and data for various

years has been compared to figure out the current scenario….

6. The focus on basics has been our main objective for having a general idea of what the bank rate is all about…

Objectives • To find out the monetary

and liquidity position of Indian economy..

• To figure out how does it Affects the economy.

• To find out various tools and measures to implement bank rates.

• To understand the concept of money supply and monetary policy.

• To understand inflation.

Bank rates

Monetary policy

Control inflation

Sustain the economy

Process Tree

Concepts• Interest rate charged by country’s

central on loans and advances to control money supply in the economy and banking sector .

Bank rates

• Policy by which central bank controls money supply in the economy, targeting the rate of interest

Monetary policy

• Money stock is total amount of money available at a specific time in the economy

Money supply

• Rise in general price level of G/S in the economy over a period of time .

Inflation

M1 M2 M3 M4

RR,RRR

CRR,SLR

CPI GDP Deflator.WPI

Quantitative, Qualitative

Findings and resultsYear Money

supply

Feb 2008 4060194

Sept 2008 4302878

Dec 2008 4414019

Mar 2009 4670399

July 2009 5028951

Jan 2010 5337566

May 2010 5677067

Due to this decrease in money supply the R.B.I injected liquidity in the market by decreasing

interest rates.

During this period money supply increased at a

decreasing rate reason being the Global turmoil at

this time…..

A more recent scenario

2007 2008 2009 2010 20110

10

20

30

40

Current rates scenario

bank rateRepo rateReverse Repo ratecah reserve ratio

Cash reserve ratio has been constant from the last

year at 6%

Reserve repo rate has increased by 3 percentage

points from 5.25% to 7.25%

Repo rate has increased 2 percentage points from

6.25 % to 8.25%

Bank rate has grown consistently over the

period of five years at 6%Inflation has been the major reason for tightening of interest rates ,affecting the liquidity position in the economy

Findings and resultsIndia Inflation Rate at 8.99 percent.The inflation rate in India was last reported at 9 percent in

August of 2011.Rbi has almost taken 11 hikes in key interest rates in order to control inflation..

Rising inflation and slowing demand would moderate

India's economic growth to 8 per cent during 2011-12 from 8.8 per cent in the previous fiscal, said a

World Bank report

Inflation at peak

Calculations and facts

• The Data for cash reserve ratio (CRR) are as percentage of net demand and time liabilities (NDTL) as per Section 42 of the RBI Act, 1934.

• Till Oct. 28, 2004, nomenclature of Repo indicated absorption of liquidity where Reverse Repo meant injection of liquidity by the Reserve Bank.

• However , with effect from 29 October 2004 nomenclature of Repo and Reverse Repo has been interchanged as per international usages.

• Beginning May 03, 2011 the repo rate became the single independently varying policy rate to single the monetary policy stance.

• The reverse repo rate continues to be operative but it is now pegged

at a fixed 100 basis points below the repo rate and is no longer an independent rate…..

bibliography

• Data has been collected from various sites and various books have been used for clearing of concepts..

1. Wikipedia.org2. Investopedia.com3. Franklintempelton.org.in4. Economictimes.indiatimes.com5. Rbi.org.in

• Books consulted

1. Macro economics concepts-Sp jain2. Macro economics India-Ck Gupta3. Macro economics – TR jain V.K ohri

Our interpretation

• Used as an effective tool to monitor economic growth..

• Used mainly to control money supply

Bank rates

• Determines the total amount of currency floating in the economy.

• Is considered as a major factor for inflation

Money supply • Rise in general price

level

• Affects the economic growth of the country

Inflation

•Group No: 1•Ankit singh karki•Faisal khan•Soumya umesan•Purnadal bagchi•Charu chaudhari

Thank you