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MONETARY

POLICY

PRESENTED BY:----Kunal Goswami

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UNDER THE GUIDANCEOF:----

Prof; S.P. Kalyankar

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Money

Store of Value

Measurement

Medium Of Exchange Payment.

Why is Money Valuable scarcity

Water v/s Diamonds

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Alternate Mediums of Exchange

Barter System

Revolution use old currencies ,

eg Czarist Coins were used in Russia in

1920s instead of Roubles

Gold used through out history

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Equilibrium in Money Markets

Supply of Money - RBI

Demand for money

Rate ofInterest

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Monetary policyis the process by

which thegovernment,centralbank, or monetary authority of

a country controls:

(i) the supply of money,

(ii) availability of money, and

(iii) cost of money or rate of interest,

in order to attain a set of objectives oriented

towards the growth and

stability of the economy.

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where an expansionary policy increases thetotal supply of money in the economy,

Expansionary policy is traditionally used tocombat unemployment in a recession by

lowering interest rates,

Monetary policy is referred to as either being

an expansionary policy, or a contractionarypolicy,

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A contractionary policy decreases thetotal money supply while contractionary

policy involves raising interest rates inorder to combat inflation.

Monetary policy is contrasted withfiscal policy, which refers togovernment borrowing, spending and

taxation

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HISTORY OF MONETAEY POLICY

The beginning of monetary policy as such comes fromthe late 19th century, where it was used to maintainthe gold standard

During the 1870-1920 period the industrializednations set up central banking systems, with one ofthe last being the Federal Reserve

in 1913

Since the 1970s, monetary policy hasgenerally been formed separately fromfiscal policy

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Reserve Ratios

CRR Cash Reserve Ratio

Now at 5%

In 1991 it was 15% SLR 25%

Gold

Cash & EqApproved RBI Bonds eg Agricultural

In 1991 it was 38.5%

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Policy Rates

Bank Rate 6%

Repo rate 6.5%

Reverse Repo 5.5%

What is Repo??

Banks buying Securities from RBI

- reverse repo

Short Term loans typically 15

days

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Rates II

PLR Prime Lending Rate 10.25 10.75%

Savings Deposit 3.5%

Call Money 4% - 5.65% FD 5.25 6.25 %, 10 years ago as much as

14 - 15%

Inflation 3-6% in the last 3 years and.61% Is today's rate

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How RBI uses monetary policy

Changing Reserve Ratios

Bank Rate

Open Market Operations

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Effects of Monetary Policy

Mostly in tandem with Fiscal Policy

Stock Markets

Assets Valuation like Real Estate, Gold,Commodities

Least Inflation Policy since 1999-00

Jobs/Output Short Term Effects

Jalan Monetary Policy a non event

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TYPE OF MONETARY POLICE

Monetary Policy: Target Market Variable: Long Term Objective:

Inflation TargetingInterest rate on overnight

debt

A given rate of change in

the CPI

Price Level Targeting Interest rate on overnightdebt

A specific CPI number

Monetary AggregatesThe growth in money

supply

A given rate of change in

the CPI

Fixed Exchange Rate

The spot price of the

currency

The spot price of the

currency

Gold Standard The spot price of goldLow inflation as measured

by the gold price

Mixed Policy Usually interest ratesUsually unemployment +

CPI change

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Recent Challenges to MonetaryPolicy Design (i)

Large capital inflows, which sometimes becomeunpredictable and volatile

Lowering inflation expectations amidst oil price shock

Handling Asset Price Considerations in MonetaryPolicy

Large credit growth driven by consumption as well asinvestment demand; possible unknown futurefinancial stability risks in current debt driven creditboom supported by retail credit

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Recent Challenges to Monetary

Policy Design (ii) Issues of Autonomy, Accountability,

Transparency & Decision-making structures

Seeking Greater Central Bank Independence

while ensuring monetary-fiscal

coordination

Continued large fiscal deficits, placing

debt management burden on monetary policy

FRBM is correcting this but would bring

new challenges for conduct of monetary

operations

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REFERANCE:--------

WWW.GOOGLE.COM

WWW.YAHOOFINANCE.COM

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MAY BE

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SLR is statutory liquid ratio, this is the % of deposits that need to bemaintained as liquid thru' investing in RBI bonds. SLR includes CRR, forexample CRR is 7% and SLR is 10%, the 3% should be can non-cashinvestments.

SDR: The SDR is an international reserve asset, created by the IMF in 1969to supplement the existing official reserves of member countries

PLR: Prime lending rate is the rate that the bank will lend to its bestcustomers.Floating rate loans will be quoted as some thing like PLR+_ 1%,when RBI changes SLR, CRR etc banks will announce chnage in PLR andother loans interest will be changed accordingly

CAR: Capital Adequacy ratio is the amount of capital that shareholdersshould put in for each 100 deposits with bank. for ex if CAR is 12.5% and abank has a deposit base of 100, then Bank's share capital+reserves andsurplus should be atleats 12.

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A consumer price index (CPI) is a measure of the average price ofconsumer goods and services purchased by households. Aconsumer price index measures a price change for a constantmarket basket of goods and services from one period to the nextwithin the same area (city, region, or nation).[1] It is a price index

determined by measuring the price of a standard group of goodsmeant to represent the typical market basket of a typical urbanconsumer.[2] Related, but different, terms are the CPI, the RPI, andthe RPIX used in the United Kingdom.It is one of several priceindices calculated by most national statistical agencies. The percentchange in the CPI is a measure ofinflation. The CPI can be used to

index (i.e., adjust for th

e effects of inflation)w

ages, salaries,pensions, and regulated or contracted prices. The CPI is, along withthe population census and the National Income and ProductAccounts, one of the most closely watched national economicstatistics.