Monetary Policy in India
CHAPTER –VI
MONETARY POLICY IN INDIA
268
CHAPTER –VI
MONETARY POLICY IN INDIA
This chapter deals with two sections such as ‗Instruments of Monetary Policy in India‘ and ‗Money, Prices and Output in India‘. The former examines the first objective of the study, i.e. to understand the changing role and importance of monetary tools in India and the latter deals with the second and third objectives of the research work. Our second objective is to find out how much monetary policy ensures financial stability and third objective is to analyze its role in facilitating growth.
SECTION-1
6.1. INSTRUMENTS OF MONETARY POLICY IN INDIA
Being the first part of this analysis chapter, we are going to take a cautious step to enter into the area of ‗instruments of monetary policy in India‘. Generally, there are two sub-divisions among the monetary policy techniques, such as quantitative and qualitative methods and they are popularly known as general and selective credit controlling measures.
Among the various techniques and methods, we have taken into account the most important and selected monetary instruments such as Bank rate, CRR, SLR,
OMO, and Repo and Reverse Repo rates; the new members of monetary management, along with selective credit control measures.
6.1.1. BANK RATE
The dictionary meaning of Bank Rate is the discount rate of a central bank.
Now it is known as the base rate and it is also called as the Minimum Lending Rate
(MLR). It is the rate at which the central bank lent to the other banks.
According to M. Spalding, the bank rate is ―the minimum rate charged by the central bank for discounting approved bills of exchange.‖ Hence, being the ‗lender of
269
last resort‘, the central bank helps the commercial banks by rediscounting the first class bills, i.e. by advancing loans against approved securities.
The Reserve Bank of India Act defines Bank Rate as ―the standard rate on which it is prepared to buy or
MONETARY POLICY IN INDIA
268
CHAPTER –VI
MONETARY POLICY IN INDIA
This chapter deals with two sections such as ‗Instruments of Monetary Policy in India‘ and ‗Money, Prices and Output in India‘. The former examines the first objective of the study, i.e. to understand the changing role and importance of monetary tools in India and the latter deals with the second and third objectives of the research work. Our second objective is to find out how much monetary policy ensures financial stability and third objective is to analyze its role in facilitating growth.
SECTION-1
6.1. INSTRUMENTS OF MONETARY POLICY IN INDIA
Being the first part of this analysis chapter, we are going to take a cautious step to enter into the area of ‗instruments of monetary policy in India‘. Generally, there are two sub-divisions among the monetary policy techniques, such as quantitative and qualitative methods and they are popularly known as general and selective credit controlling measures.
Among the various techniques and methods, we have taken into account the most important and selected monetary instruments such as Bank rate, CRR, SLR,
OMO, and Repo and Reverse Repo rates; the new members of monetary management, along with selective credit control measures.
6.1.1. BANK RATE
The dictionary meaning of Bank Rate is the discount rate of a central bank.
Now it is known as the base rate and it is also called as the Minimum Lending Rate
(MLR). It is the rate at which the central bank lent to the other banks.
According to M. Spalding, the bank rate is ―the minimum rate charged by the central bank for discounting approved bills of exchange.‖ Hence, being the ‗lender of
269
last resort‘, the central bank helps the commercial banks by rediscounting the first class bills, i.e. by advancing loans against approved securities.
The Reserve Bank of India Act defines Bank Rate as ―the standard rate on which it is prepared to buy or
References: 1. De Kock, M.H. 1956. Central Banking, Granada Publishing Limited, New Delhi, pp.146-175. 2. Reserve Bank of India: Report on Currency and Finance, Various Years, (1991-2010), Mumbai. 3 4. Gupta, S.B. 1992. Monetary Economics Institutions, Theory and policy, S. Chand and Company Ltd, New Delhi, p.377 5. De Kock, M.H. 1956. Central Banking, Granada Publishing Limited, New Delhi, pp.57-67. 6. Reserve Bank of India: Report on Currency and Finance, Various Years, (1991-2010), Mumbai 7 8. De Kock, M.H. 1956. Central Banking, Granada Publishing Limited, New Delhi, pp.179-180 9. Gupta, S.B. 1992. Monetary Economics Institutions, Theory and Policy, S. Chand and Company Ltd, New Delhi, p.374. 10. Reserve Bank of India: RBI Occasional Paper (Special Edition, 2009), Mumbai. 11. Reserve Bank of India: Report on Currency and Finance, Various Years, (1991-2010), Mumbai 12 13. Chandler, L.V. 1964. The Economics of Money and Banking, Fourth Edition, Harper & Row Ltd, p.237. 14. Reserve Bank of India: RBI Occasional paper, (special edition, 2009) Mumbai. 15. Baye, Michael.R. and Jansen, Dennis. W. 2000. Money, Banking and Financial Markets- an Economics Approach, AITBS Publishers, Delhi, pp.474-477. 16. Reserve Bank of India: RBI Occasional paper (special edition, 2009), Mumbai. 401 17. Reserve Bank of India: RBI Occasional paper (special edition, 2009), Mumbai. 18. Baye, Michael.R. and Jansen, Dennis. W. 2000. Money, Banking and Financial Markets- an Economics Approach, AITBS Publishers, Delhi, pp.61-72. 19. Reserve Bank of India: RBI Occasional paper (special edition, 2009), Mumbai. 20. Reserve Bank of India: RBI Occasional paper (special edition, 2009), Mumbai 21 22. Reserve Bank of India, various publications, (1991-2010), Mumbai