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1457233387-MonetaryandCreditPolicyOfRBI.pptx (Size: 52.71 KB / Downloads: 7)
INTRODUCTION
Monetary policy is the process by which monetary authority of a country, generally a central bank controls the supply of money in the economy by its control over interest rates in order to maintain price stability and achieve high economic growth. In India, the central monetary authority is the Reserve Bank Of India(RBI).
FUNCTIONS OF RBI
Issue Of Currency Notes : Under section 22 of RBI Act, the bank has the sole right to issue currency notes of all denominations except one rupee coins and notes
Banker To The Government: The RBI acts as a banker agent and adviser to the government. It has obligation to transact the banking business of Central Government as well as State Governments
Banker’s bank And Lender Off Last Resort Controller Of Credit : RBI acts as a banker to other banks. RBI acts as a lender of last resort.
Exchange control And Custodian Of Foreign Reserve : RBI has the responsibility of maintaining fixed exchange rates with all member countries of IMF.
Collection And Publication Of Data : The RBI collects and complies statistical information on banking and financial operations of the economy.
Regulatory And Supervisory Functions The RBI has wide powers of supervision and control over commercial and co-operative banks.
Clearing House Functions : The RBI acts as a clearing house for all member banks. This avoids unnecessary transfer of funds between the various banks.
Controller Of Credit : RBI has power to control the volume of credit created by banks.
OBJECTIVES OF MONETARY POLICY
Growth With Stability: This means sufficient credit will be available for growing needs of different sectors of economy and at the same time, inflation will be controlled with in a certain limit.
Regulation, Supervision And Development Of Financial Stability: Greater importance is being given to RBI’s role in maintaining confidence in financial system through proper regulation and controls
Promoting Priority Sector riority sector includes agriculture, export and small scale enterprises and weaker section of population
Generation Of Employment :Monetary policy helps in employment generation
External Stability :RBI has only indirect control over external stability through the mechanism of ‘managed Flexibility’
Encouraging Savings And Investments :RBI by offering attractive interest rates encourage savings in the economy.
Redistribution Of income And Wealth :redistribute income and wealth favouring to weaker sections.
Regulation Of NBFIs:However it can indirectly affects the policies and functions of NBFIs through its monetary policy.
RECENT CHANGES IN RBI’s MONETARY POLICY :-
Multiple Indicator Approach : Multiple indicator Approach in which it looks at a variety of economic indicators and monitor their impact on inflation and economic growth.
Selective Methods Being Phased Out :With rapid progress in financial markets, the selective methods of credit control are being slowly phased out
Reduction In Reserve Requirements :In post-reform period the CRR and SLR have been progressively lowered.
Deregulation Of Administered Interest Rate System : 1990s this system has changed and lending rates are determined by commercial banks on the basis of market forces.
Delinking Of Monetary Policy From Budget Deficit :
Liquidity Adjustment Facility (LAF):The funds under LAF are used by banks to meet day-to-day mismatches in liquidity.
Provision Of Micro Finance: RBI has introduced the scheme of micro finance for rural poor.
External Sector:
Expectation As A Channel Of Monetary Transmission
AchivementMonetary Policy
Short Term Liquidity Management: RBI has developed various methods to maintain stability in interest rate and exchange rate
Financial Stability: With the help of controls, regulation and supervision mechanism, RBI has been successful in maintaining financial stability
Financial Inclusion :RBI has made a great impact in the growth of microfinance
Adaptability:In India monetary policy is flexible, as it changes with time.
Increase In Growth: To maintain the growth of economy RBI has used its instruments' effectively.
Increase In Bank Deposits: The increase in bank deposits over the years indicates trust and confidence of people in banking sector
Competition Among Banks :The monetary policy of RBI has resulted in healthy competition among banks in the country.
LIMITATION
Huge Budgetary Deficits:
Coverage Of Only Commercial Banks
Problem Of Management Of Banks And Financial Institutions
Unorganised Money Market
Less Accountability:
Black Money :
Increase Volatility :
Lack Of Transparency :