Monetary PolicyMonetary policy is the process by which the

monetary authority of a country controls the

supply of money, often targeting a rate of

interest for the purpose of promoting

economic growth and stability. The official

goals usually include relatively stable prices

and low unemployment. Monetary

economics provides insight into how to

craft optimal monetary policy.

Advantages & Disadvantages of Monetary Policy

M1 Measurement :

M2 Measurement :

M3 Measurement :

It is also broad concept of supply of money compared to M1

because includes all the components of M1, it also include total

deposit with the post offices (other than National saving certificate).

M4 Measurement :

Instruments of Monetary PolicyThere are two types of Instruments of Monetary Policy

1. Quantitative Measures 2.Qualitative Measures

Quantitative Measures:-These are those instruments which affect overall supply of moneyor credit in the economy.

Qualitative Measures:-These are those instrument which focus on the alternatives uses of

credit in the economy.

Expansionary

Policy

Contractionary

Policy

1. An Expansionary

Policy increases the total

supply of money in the

economy.

1. A Contractionary Policy

decreases the total

money Supply into

market.

2. Expansionary policy is

traditionally used to

combat a recession by

lowering interests rates.

2. A Contractionary Policy

results in increasing

interest rates to combat

inflation.

Key Indicators

Indicator Current rate

Inflation 7.52%

Bank rate 9%

CRR 4.00%

SLR 23%

Repo rate 8.00%

Reverse repo rate 7.00%

Marginal Standing facility rate 9.00%

As of 29 January 2014, the key indicators are:

• RBI increase or decrease the rates i.e. repo rate, reverse repo

rate, Cash reserve ratio, statutory liquidity ratio to control the

money supply in the economy.

• Monetary policy will continue to provide support to these areas.

stability, especially price and financial stability; will undoubtedly

facilitate accelerated growth.

•The change in monetary policy of RBI affect many other rates

and which also affect the consumer and these rates are the

instrument of RBI to control the money supply in the economy.