ME Final Ppt(2)

8/8/2019 ME Final Ppt(2)

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INTRODUCTION

The Reserve Bank of India is the central bank of the

country entrusted with monetary stability, the

management of currency and the supervision of the

financial as well as the payments system.

The Reserve Bank of India was established on April 1,

1935 in accordance with the provisions of the Reserve

Bank of India Act, 1934.

The Central Office of the Reserve Bank has been in

Mumbai since inception.


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FUNCTIONS OF RBI

Bank of issue

Sole right to issue bank notes of all denominations. The

distribution of one rupee notes and coins and small coins all overthe country is undertaken by the Reserve Bank as agent of the

Government.

Banker to Government

Act as Government banker, agent and adviser. The Reserve Bank

of India helps the Government - both the Union and the States to

float new loans and to manage public debt.

It acts as adviser to the Government on all monetary and banking

matters.


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Bankers' Bank

Every scheduled bank was required to maintain with the Reserve Banka cash balance equivalent to 5% of its demand liabilites and 2 per cent

of its time liabilities in India. The scheduled banks can borrow from the

Reserve Bank of India on the basis of eligible securities.

Controller of Credit

It has the power to influence the volume of credit created by banks in

India.

Custodian of Foreign Reserves

The Reserve Bank of India has the responsibility to maintain the

official rate of exchange. Besides maintaining the rate of exchange of

the rupee, the Reserve Bank has to act as the custodian of India's

reserve of international currencies


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Supervisory function

Powers of supervision and control over commercial and

co-operative banks, relating to licensing and establishments,

branch expansion, liquidity of their assets, management and

methods of working, amalgamation, reconstruction, and

liquidation.


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It is concerned with changing the supply of money

stock and rate of interest for the purpose of stabilizing

the economy at full employment or potential output

level by influencing the level of aggregate demand.

At times of recession monetary policy involves the

adoption of some monetary tools which tends to

increase the money supply and lower interest rate so as

to stimulate aggregate demand in the economy.

At the time of inflation monetary policy seeks to

contract aggregate spending by tightening the money

supply or raising the rate of return.

MONETARY POLICIES


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Objectives :- To ensure the economic stability at full employment or

potential level of output.

To achieve price stability by controlling inflation and

deflation.

To promote and encourage economic growth in the

economy


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WEAPONS :-

BANK RATE: Bank Rate is the rate at whichcentral bank of the country (in India it is RBI) allows

finance to commercial banks

REPO RATE: Repo (Repurchase) rate is the rate

at which the RBI lends shot-term money to the banks

REVERSE REPO-RATE: Reverse Repo rate is

the rate at which banks park their short-term excess

liquidity with the RBI.


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VARIABLE RESERVE RATIO :Commercial banks in every country maintain, either by the

requirement of law by or custom , a certain percentage of their

deposits in the form of balances with the central bank .The central bank has the power to vary this reserve requirement

and the variation in the reserve requirements affect the credit

creating capacity of commercial banks

CRR : CRR means Cash Reserve Ratio. Banks in India are

required to hold a certain proportion of their deposits in the form

of cash.

SLR : Every bank is required to maintain at the close of

business every day, a minimum proportion of their Net Demand

and Time Liabilities as liquid assets in the form of cash, gold and

un-encumbered approved securities


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OPEN MARKET OPERATIONS

Its refer broadly to the purchase and sale by

the Central Bank of a variety of assets, such

as foreign exchange, gold, government

securities and even company shares. InIndia, they are confined to the purchase and

sale of Government securities.

To increase the money supply, the centralbank buys securities from commercial banks

and public.


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FISCAL POLICY

Fiscal policy is another type of budgetary policy in relation to

taxation, public borrowing, and public expenditure.

Once the fiscal situation was decided and determined by thegovernment, it was the central banks responsibility to ensure

that monetary stability was maintained and the governments

borrowing programme was managed with minimum

disruptions, in terms of stability

Involves an increase in taxation and decrease in government

spending.

Increase in taxes leads to reduce in private expenditure.


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1. To achieve desirable price level:

The stability of general prices is necessary for economic

stability. The maintenance of a desirable price level has

good effects on production, employment and nationalincome. Fiscal policy should be used to remove;

fluctuations in price level so that ideal level is maintained.

2.To Achieve desirable employment level:The efficient employment level is most important in

determining the living standardof the people. It is

necessary for political stability and for maximization

ofproduction. Fiscal policy should achieve this level.

OBJECTIVEOFFISCAL

POLICY


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Weapons ofFiscal Policy

1. Taxation Policy:Increase in taxes would effectively reduce private expenditure,

in an effect to minimise inflationary pressures. It is known that

when more taxes are imposed, the size of the disposable income

diminishes, also the magnitude of the inflationary gap in regardsto the availability of the supply of goods and services.

2. Deficit financing policy:

RBI has to issue new currency notes. But this decision should be

taken very carefully because increasing trend of deficit financing

will decrease the value of currency in world market and it will

increase the prices of commodities in commodity market.


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3. Government loan:

The government should avoid paying back any of its past

loans during inflationary periods, in order to prevent anincrease in the circulation of money

4. Public debt:

The effects of a large deficit budget, which is mainly responsible for inflation, can be partially offset by covering

the deficit through public borrowings.


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POINT TO REMEMBER

Keynes, however, suggested a programme of compulsory savings,such as deferred pay as an anti-inflationary measure. Deferred pay

indicates that the consumer defers a part of his or her wages by

buying savings bonds (which, of course, is a sort of public

borrowing), which are redeemable after a particular period of time,

this is sometimes called forced savings. Additionally, private

savings have a strong disinflationary effect on the economy and an

increase in these is an important measure for controlling inflation.


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Other Direct Measures

Direct controls refer to the regulatory measures undertaken to convertan open inflation into a repressed one. Such regulatory measures

involve the use of direct control on prices and rationing of scarce

goods.

The function of price control is a fix a legal ceiling, beyond whichprices of particular goods may not increase.

1.)Increasing Production:

(a) One of the foremost measures to control inflation is to

increase the production of essential consumer goods like food,

clothing, kerosene oil, sugar, vegetable oils, etc


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(b) Rationing:

Rationing aims at controlled distribution of scarce goods so as to make

them available to a large number of consumers. It is applied to essential

consumer goods such as wheat, rice, sugar, kerosene oil, etc. It is meant tostabilise the prices of necessaries and assure distributive justice. But it is

very inconvenient for consumers because it leads to artificial shortages,

corruption and black marketing.

(c) Direct Control:

Direct Price control is another measure of direct control to check

inflation. It means fixing an upper limit for the prices of essential

consumer goods. They are the maximum prices fixed by law andanybody charging more than these prices is punished by law. But it is

difficult to administer in this case.


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Some Latest Updates :Price rise has become a problem for the Indianeconomy and to control the price rise, the Indian

government is taking certain measures.

It may be noted, that inflation has declined but to an

extent.

Measures include, withdrawing of the export incentives on steel

and cement, banning exports of non basmati rice etc. Now the

effect of the recent measures by the RBI can only be assessed in the

coming future.

Inflation Rate decreased from 8.62% to

8.58 % in October 2010


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Finance Minister Pranab Mukherjee has said inflation is a

price to pay for rapid growth. There are suggestions in the

government of a "new normal" of inflation running at 6 to

8 percent, from the roughly 5 percent considered acceptable

by policymakers in recent years.


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Under attack for rising prices, prime minister Manmohan Singh said the

government was making every possible effort to control "high inflation"

and insulate poor from its adverse impact.

He said "I know that in the last few months high inflation has caused you

difficulties. It is the poor who are the worst affected by rising prices,

especially when the prices of commodities of every day use like foodgrains,

pulses, vegetables increase.

He said that to achieve goals, the government did not need any new

scheme or programme to be launched. "However, we do need to

implement the schemes we have already started more effectively,

minimising the chances of corruption and misuse of public money."


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Latest Rates :

1. CRR 6 %

2. SLR 25 %

3. REPO RATE 6.25 %

4. REVERSE REPO RATE- 5.25 %

5. BANK RATE 6.0 %


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Conclusion :

From various monetary, fiscal and other

measures it becomes clear that to control

inflation government should adopt all measuressimultaneously.

That the success of the fiscal measures to control inflation

needs a matching demand-supply equation is vindicated by

Indias failure to check price rise in 2010. RBI has hiked policy

rates repeatedly during the last two years, but prices, especially

food prices, have gone on increasing unchecked as demand has

continued to outpace supply.


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1.www.google.com

2.www.allbankingsolutions.com

3.www.rbi.org.in

4.www.businesseconomics.in

5.www.financialexpress.com

6. www.wikipedia.com


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ME Final Ppt(2)