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FLOW OF PRESENTATION
1. Macroeconomic Policies 2. Meaning & Objectives of Monetary Policy 3. Monetary Policy Terminology 4. Current Rates 2012 5. Monetary Policy Influence 6. CRR and its Movement last 5 years 7. Inflation and its Movement last 5 years 8.SLR and its Movement last 5 years 9. Reverse Repo Rate and its Movement last 5 years 10. Repo Rate and its Movement last 5 years 11. Challenges of RBI 12. Limitation of Monetary Policy
Macroeconomic Policies
Fiscal Policy
Related to budget, government expenditure, taxation
Monetary Policy
Related to money supply, exchange rate control and bank rate control
Monetary Policy
Regulation of supply of Money and Cost and Availability of Credit in the economy Purpose of Monetary Policy Maintain price stability, ensure adequate flow of credit to the productive sectors of the economy and overall economic growth
Variables affected by Monetary Policy in the economy Interest Rates Liquidity Credit Availability Exchange Rates
7.45%
9% 4.75 %
23 % (w.e.f. 11/08/12) 8%
55.71
Target Variables
Policy Variables - Money supply - OMO: Liquidity conditions - policy rates (CRR, repo etc.)
-Savings
-Investment
WHAT IS CRR ??
CRR, or cash reserve ratio, refers to a portion of deposits (as cash) which banks have to keep/maintain with the RBI. During Inflation RBI increases the CRR due to which commercial banks have to keep a greater portion of their deposits with the RBI . This serves two purposes. It ensures that a portion of bank deposits is totally risk-free and secondly it enables that RBI control liquidity in the system, and thereby, inflation.
CRR Movement
10 9 8 7
6
5 4 3 2 1 0 CRR Rate
What is Inflation ?
Inflation is a rise in the general level of prices of goods and services in an economy over a period of time. When the price level rises, each unit of currency buys fewer goods and services. A chief measure of price inflation is the inflation rate .When Prices rise the Value of Money falls.
Stages of Inflation
1. CREEPING INFLATION 2. WALKING INFLATION 3. GALLOPING INFLATION 4. HYPER INFLATION (2% -3 %) ( 8% - 12%) (15% - 30 %) ( 30 % abv)
Inflation Movement
What is SLR ?
Banks are required to invest a portion of their deposits in government securities as a part of their statutory liquidity ratio (SLR) requirements . If SLR increases the lending capacity of commercial banks decreases thereby regulating the supply of money in the economy.
22.5 23 24
23.5
24.5
25.5
25
01/02/2010
01/05/2010 01/08/2010 01/11/2010
01/02/2011
01/05/2011 01/08/2011 01/11/2011 01/02/2012 01/05/2012 01/08/2012 SLR Rate
SLR Movement
SLR Rates
Date Rate
11/08/2012
18/12/2010 07/11/2009 08/11/2008
23
24 25 24
10
1 Repo Rate
25/01/2011
2/11/2010 16/09/2010 2/7/2010 20/04/2010 19/03/2010 4/3/2009 2/1/2009 8/12/2008
Repo Rate
20/10/2008
29/07/2008 11/6/2008
last 5 years
26
27
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