MONETARY POLICYMADE BY: APURVA

KHANGROT APURVA

MEHTA ARUN GAUR

ASTHA DUBEY

ASHISH AGARWAL

ASHUTOSH UDAWAT

ASIF ALI CHANCHAL

UDERANI DEEPAK

SINGH DEEPALI

GARG

DEFINITION

According to Prof. Harry Johnson, "A policy employing the central

banks control of the supply of money as an instrument for achieving the objectives of general economic policy is a monetary policy."

OBJECTIVES

Rapid Economic Growth Price Stability Exchange Rate Stability Balance of Payments (BOP)

Equilibrium Full Employment Equal Income

EVOLUTION OF MONETARY POLICY IN INDIA After the crises in 1991, stabilization

went simultaneously with structural reforms.

Change in context fundamentally altered the manner in which monetary policy began to be formulated

Macroeconomics and price stability received greater emphasis

Continuous rebalancing of priority between growth and price stability

HISTORY OF MONETARY POLICY

With the creation of the bank of England in 1694,which acquired the responsibility to print the notes and back them with gold after that monetary policy as independent established.

The goal of monetary policy was to maintain the value of the coin, print notes which would trade at par to spicie. and prevent coins from leaving circulation.During the year 1870-1920, the industrialized nations set up central banking system.

INSTRUMENTS OF MONETARY POLICY

General (Quantitative) Methods Selective (Qualitative) Methods

QUANTITATIVE METHODS

Bank RateThis is the rate at which central

bank (RBI) lends money to other banks or financial institutions. If the bank rate goes up, long-term interest rates also tend to move up, and vice-versa. Bank Rate is 6% and also known as discount rate.

Open market operationsIt is purchase and sale by central bank of a variety of assets,such as

foreign exchange,gold and government securities

Cash reserve ratioEvery commercial bank has to

keep,a certain percentage of their deposits with the central bank called as cash reserve ratio. At

present it is 6%

Statutory Liquidity Ratio This term is used by bankers and indicates the minimum percentage

of deposits that the bank has to maintain in form of gold, cash or

other approved securities. It regulates the credit growth in India. At present SLR is 24%.

QUANTITATIVE TOOLS OF MONITORY POLICY

The lending and investments+ Credit Rationing :

certain conditions are laid by the Central Bank to

see proper regulation of consumer credit.

Direct Action: It has its direction and restrictive measures, which all the concern banks should follow regarding .

QUANTITATIVE

Quantitdf ative + Credit Rationing : certain conditions are laid by the Central Bank to see proper regulation of consumer credit.

Direct Action: It has its direction and restrictive measures, which all the concern banks should follow regarding the lending and investment

Margin Requirement : This is done keeping in view the difference between the value of security and the amount of ad.

Moral Persuasion: It helps the Central Bank to secure the willingness and co-operation, but then that depends on the amount of respect and authority the Central Bank enjoys among the member banks to cover any loss.

MONEY SUPPLY

Meaning of money supply In economics, the money supply or money stock, is

the total amount of money available in an economy at a specific time.

Money Money refers to currency in circulation and demand

deposits. Money supply and monetory policy is also a mean of

control of inflation There are four major players of money supply

Central bankbankdepositorsborrowers from bank

DEPLOYMENTS OF MONEY SUPPLY

Net bank credit to government (A):

. Bank credit to commercial sector (B

. Government’s currency liabilities to the public (D):

Net foreign exchange assets of banking sector (C

. Banking sectors’ net non-monetary liabilities other than time deposits (E):

MEASURES OF MONEY STOCK

The RBI employs four measures of money stock, namely M1, M2, M3 and M4.

M1 : This is the money supply i.e the currency with the public and demand deposits with the bank and other deposits with RBI. In developed countries demand deposits form a major part of the money supply. Demand deposits are primarily savings and current account deposits where your are able to "demand" your money at any time, unlike a term deposit, which cannot be accessed for a predetermined period.

M2: M1+Post Office Savings

M3 or aggregate money supply : M2 Time Deposits with the banks.

M4: M3+total Post office deposits

MAJOR TYPES OF CURRENCY

There are four major types of currency.1. Reserve currency A foreign currency held by central banks and

other major financial institutions as a means to pay off international debt obligations, or to influence their domestic exchange rate.

2. Commodity block currency A currency that belongs to a country whose

economy is strongly correlated with the price fluctuations of a certain commodity.

3. Weak currency A currency with value that has depreciated

significantly over time against other currencies. 4. High risk currencies A form of risk that arises from the change in

price of one currency against another. Whenever investors or companies have assets or business operations across national borders, they face currency risk if their positions are not hedged.

FISCAL POLICY

Fiscal Policy is the main part of Economic policy  and Fiscal Policy's first word Fiscal is taken from French word Fisc  it means treasure of Govt. So we can define fiscal policy as the revenue and expenditure policy of Govt. of India .It is prime duty of Government to make fiscal policy . By making this policy , Govt. collects money from his different resources and utilize it in different expenditure . Thus fiscal policy is related to development policy . All welfare projects are completed under this policy 

TECHNIQUE OF FISCAL POLICY

Taxation Policy

Public Expenditure Policy

Public Debt Policy

Deficit Financing Policy

OBJECTIVES OF FISCAL POLICY

Development of Country

Employment

Inequality

Fixation of Govt. Responsibility

THE UNION BUDGET

An estimate of all anticipated revenue and expenditure of the Union Government.

The Union Budget is laid before Parliament on the last working day of february every year.

All receipts and expenses of the Union Govt. are kept under –

The Consolidated Fund – All revenue raised by Govt., loans raised by it and also receipts from recoveries of loans granted from the Consolidated Fund.

All expenditure is incurred from the Consolidated Fund. No amount can be withdrawn from the Consolidated Fund

without authorisation from Parliament.. Public Account – It includes all other receipts &

disbursements such as deposits, service funds & remittance, which is not subject to vote of parliament

The presentation , followed by generaldiscussion on the budget in both housesof Parliament.The estimates from the ConsolidatedFund of India , are placed before the Lok Sabhain the form of Demand for Grants.All withdrawls are then authorised byan Appropriation Act.The tax proposals are embodied in another billwhich is passed as the Finance Act of the year.These are audited by the Comptroller and Auditor General.

THE STRUCTURE OF THE BUDGET

Budget is divided into revenue (receipts)& expenditure (disbursements). Horizontally itis divided into revenue accounts & capital accounts. Thus receipts are divided as revenue & capitalreceipts. Disbursements are divided as revenue & Capital expenditureThe revenue expenditure includes all current expenditure of Govt. on administration , capital expenditure includes all the capital transaction of the Govt.The revenue receipts include revenue from taxes, capitalreceipts include market loans, external aid, income fromrepayments & other receipts.

STATE BUDGET

Estimates of receipts and expenditure are

presented by State Govt. to theirlegislature before the beginning of

thefinancial year and legislative

sanction forexpenditure is secured through

similarprocedure.

CURRENT SCENARIO OF MONETARY POLICY The following features of monetry policy were revised as on

Oct. 25, 2011:- Repo Rate: Increase in the repo rate by 25 basis points from

8.25 per cent to 8.50 per cent. Reverse Repo Rate: The reverse repo rate under the

LAF(liquidity adjustment facility), determined with a spread of 100 basis point below the repo rate, automatically adjusts to 7.50 per cent .

Marginal Standing Facility (MSF) Rate: MSF rate, determined with a spread of 100 basis points above the repo rate, stands calibrated at 9.50 per cent.

Bank Rate: The Bank Rate has been retained at 6.0 per cent. Cash Reserve Ratio: The cash reserve ratio (CRR) of

scheduled banks has been retained at 6.0 per cent of their NDTL.

ADVANTAGES AND LIMITATIONS OF MONETARY POLICY

ADVANTAGES Price stability External economic stability Economic developmentLIMITATIONS Limitations during deflation Lags in monetary policy Changes in the velocity of money Attitude of banks

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