Rbi and monetary policy final
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Transcript of Rbi and monetary policy final
RBI AND MONETARY POLICY
Compiled bySanchit Pathak
Bhavya KeniaMohanish GaikwadKrishna Chukewad
Devesh KadamAditya Kakad
Abhiraj PhadnisAkshay RajputDhiraj Khadka
S.Y.BTech, Electrical Department ,V.J.T.I., Matunga, Mumbai-19.
Reserve Bank Of India(RBI) Established - in Calcutta -1st April, 1935
It was set up on the recommendations of the HILTON YOUNG COMMISSION.
It was started as a Share-Holders Bank - paid up capital of Rs. 5 crs - initially privately owned.
Reserve Bank Of India(RBI) 1937 - moved to Mumbai.
First bank to be Nationalised on 1st Jan,1949.
19 regional offices in India.
Structure of RBICENTRAL BOARD OF
DIRECTORS
APPOINTED BY GOI
GOVERNORS
APPOINTS
SUPPORTIVE BODIES OFFICES AND
BRANCHES
Governors
RBI: Supportive Bodies
BOARD OF FINANCIAL SUPERVISION(BFS)
TARAPORE COMMITTEE
CUSTOMER SERVICE DEPARTMENT
RBI: Offices And Branches
Reserve Bank Of India(RBI)
US $ 355,353.9 M
US $ 331,731.1 M
US $ 18,250.1 M
US $ 5,372.7 M
RBI: Functions
Supply Of Notes
Banker To Govt
Custodian Of Cash Reserves
Custodian Of Foreign Reserves
Clearing House Functions
RBISecond
Commercial Bank
One Commercial
bank
Credit Control Controls Creation Of Credit
Uses Qualitative and Quantitative tools.
Thereby controlling inflation.
Lender of Last Resort When commercial banks face financial
crisis or shortfall of cash(Low CR)
They approach other banks and if their demands are not met,
they approach to RBI as their
“LAST RESORT”
Monetary policy rests on the relationship between the rates of interest in an economy ,that is the price at which money can be borrowed ,and the total supply of money. (1)The supply of money.
(2)Availability of money ,and
(3)Cost of money or rate of interest to attain a set of goals.
MONETARY POLICY:
TYPES OF MONETARY POLICY
Tight Monetary Policy: “Tight monetary policy, tends to curb inflation by
contracting/reducing the money supply.
Expansionary /Easy monetary policy : “Easy monetary policy ,also called expansion
monetary policy ,tends to encourage growth by expanding the money supply.”
TOOLS OF MONETARY POLICYQuantitative Tools Open Market Operations Bank Rate Cash Reserve Requirement Liquidity Ratio Special Deposit
Qualitative Tools Credit rationing Credit ceiling Moral Persuasion Direct Action Advertisement
Price Stability Price stability refers to avoiding long term
inflation/deflation in order to bring the prices to a reasonable level.
In case of inflation ,the central bank(RBI) may tighten the monetary policy so as to decrease the supply of money and thus bring down the prices.
In case of deflation the RBI adopts a liberal monetary policy ,thus increasing the money supply causing a further increase in demand and normalizing the prices.
High Employmento The role of central bank is to implement a
monetary policy which creates a positive sentiment in the market thus promoting demands and a corresponding growth in manufacturing and services sector ,thus creating employment opportunities.
Economic Growth The Monetary Policy aims at improving the economic growth
of the nation.
The main measures involved in achieving economic growth include reducing the fiscal deficit, allowing a greater share in GDP to the manufacturing sector, allowing greater capital inflow in the economy increasing the forex reserves.
However developing economies may not see a steady growth in economy due to the Monetary Policy alone. The reasons for this include challenges offered on the supply side, lower participation of the citizens in the banking system ,financial conditions persisting in the world markets.
Quantitative Tools Of Monetary Policy(A) Cash Reserve Ratio (CRR) It is a fixed percentage of NDTL(Net Demand and Time
Liabilities) which banks have to deposit with the RBI so as to avoid a situation of bankruptcy.
The banks cannot use this money for investment purposes ,buying government securities or trading.
4%
(B) Statutory Liquid Ratio (SLR)
.
Every bank must possess a certain amount of liquid assets of their NDTL as regulated by the RBI.
The Banks have the provision to invest this funds in RBI approved securities, that is the banks can buy government securities, trade with commodities such as gold ,silver. Commercial banks usually do not buy foreign currencies because of market volatility.
22%
.
To combat inflation the RBI will increase the CRR and SLR ,causing a hike in interest rates ,thus bringing down lending by banks ,creating shortage of demand and stabilizing the prices.
Accordingly the decrease in interest rates will help combat deflation.
Repo Rate :
The Interest Rate at which the RBI lends money to its clients(All Banks/Government/NBFI) for a short term (Min Amount being Rs.5 crore) is the Repo Rate of RBI.
The banks are required to pledge their assets in the form of securities against the loan pertaining that these assets do not belong to the SLR maintained by the banks.
8%
Reverse Repo Rate : The Interest Rate at which the RBI may borrow
money from its client banks is called as the Reverse Repo Rate.
The RBI may rest some of its government securities against this loan.
7%
Bank Rate: Bank Rate is the interest rate at which the central
bank lends long term loans to commercial banks and public banks.
The banks are not required to pledge their assets with the RBI as a security against the loan.
8.25%
OPEN MARKET OPERATIONS (OMO) : The sale and purchase of government securities by
RBI refers to OPEN MARKET OPERATIONS.
Marginal Standing Facility (MSF) : Banks may borrow a small sum of money from RBI
(Min amount being Rs.1 Crore) for a short term referring to the MSF.
As a part of MSF banks may pledge their SLR assets with RBI against the loan.
The MSF can be availed only by the scheduled commercial banks.
Bibliography https://www.rbi.org.in/
https://en.wikipedia.org/wiki/Reserve_Bank_of_India
https://en.wikipedia.org/wiki/Monetary_policy_of_India
https://www.youtube.com/user/TheMrunalPatel
THANK YOU!!Compiled by-Sanchit PathakBhavya KeniaMohanish GaikwadKrishna ChukewadDevesh KadamAditya KakadAbhiraj PhadnisAkshay RajputDhiraj KhadkaV.J.T.I., Matunga, Mumbai-19.