Rbi Monetary Policy in India

RBI Monetary Policy – S2 Group 1 1. Fiscal Policy  Use of “Government Expenditure”, and “taxation” to manage the economy.  Purpose of Fiscal Policy o Stabilise economic growth o avoiding the boom and bust economic cycle  Variables affected by Fiscal Policy in the economy o Aggregate demand and the level of economic activity o The pattern of resource allocation o The distribution of income. 2. Physical Policy  Meant to affect only strategic points of the economy.  Purpose of Physical Policy o Overcome specific problems such as pricing of particular commodity, shortages or surpluses developing in the economy etc.  Variables affected by Physical Policy in the economy o Price and distribution of specific commodity o Investment and production o Foreign Trade 3. Monetary Policy  Regulation of supply of Money and Cost and Availability of Credit in the economy.  Purpose of Monetary Policy o Maintain price stability o Ensure adequate flow of credit to the productive sectors of the economy o Overall economic growth  Variables affected by Monetary Policy in the economy o Interest Rates o Liquidity o Credit Availability o Exchange Rates 4. Monetary Policy – RBI’s role  Demand for Money Demand for goods/services  Ensuring price Stability by controlling CRR, OMO & Bank Rate savings  Control on money Control on bank supply, velocity of credit when prices circulation of money rise/fall during inflation 5. Current Global Scenario  Global GDP -0.6%  World trade contraction by Tighter credit  Recession  Production 0.5% Plunge  Demand Slump  Job losses  Aggressive and unconventional measures taken by Governments and central banks

6. CRR Movement

7. Inflation Movement

8. SLR Movement

9. Repo and Reverse Repo rates Movement

10. Limitations  Monetary Policy cannot simultaneously stimulate economic demand to reduce unemployment and restrain demand to combat inflation  Monetary policy is restricted by the impact of other government actions, especially