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 exercising 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), is so designed as to maintain the price stability in the economy.

MEASURES OF MONETARY SUPPLY IN INDIA

There are two basic measures of money they are:Narrow and broad. Till 1988 RBI calculates 4 components of money supply , which now termed as old money measures Old measures are: M1 = currency with public + Demand Deposits with banks + other deposits with RBI M2 = M1 + Post office savings M3 = M1+ time deposits of the public with banks. M4 = M3+ saving and time deposits with post office.

After 1998 RBI calculates again four components:

M0 = currency in circulation + Bankers deposits with the RBI

+ other Deposits with the RBI M1(NM1) = currency with public + Demand deposits with the banking system + Other deposits with the RBI. M2(NM2) = M1 + liabilities + deposits issued by banks + Term deposits of residents with the contractual maturity of up to and including one year. M3(NM3) = M2 + Term deposits of residents with a contractual maturity of over one year + term borrowings from non depository financial corporations.

Liquidity Measures

L1 = NM3 + postal deposits L2 = L1 + liabilities of financial institution L3 = L2 + public deposits with non banking finance companies.

o Net bank credit to the bank

o Bank credit to the commercial sector o Net foreign exchange assets of the banking sector o Government currency liabilities to the public o Non monetary liabilities of the banking sector

Need to regulate the supply of money:

Money supply and inflation Interest rate and investment Supply of money Low Interest rate Higher investment

Inflation

Increase Demand

Employment

RESERVE BANK OF INDIA

In India RBI who manages the supply of money. Established Imperial bank(1921). Because of Central Banking Enquiry Committee , on 1st April, 1935 RBI started working. Nationalized in 1949

THE Preamble of the RBI Act, 1934

 Issue of currency

Banker to government I. Ways and Means Advances. Bankers Bank Controller of credit Exchange management and control

 Collection And Publication of Data

Supervisory Function. 1. Development an d promotion function Promoter of Financial system.

Money market

 Agricultural Sector
Industrial Finance.

 Expansion of money is required in a developing for the purpose of development and investment but this expansion results in inflation. RBI manages the forex rate through open market operations of bank credit and monetary supply.

Quantitative Credit Control

Open Market Operations
The Bank Rate Cash Reserve Ratio

The Statutory Liquidity Ratio

REPOs

Qualitative Credit Control

Margin requirement Rationing of Credit Direct Action Moral Suasion

Thank you
Presented By: Vineet Jain Y.Harinatha Reddy Md Anas Videept sharma