monetary-policy-1219485426721922-9

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7/29/2019 monetary-policy-1219485426721922-9


What is Monetary Policy?

• Monetary Authority’s policy to manage supply

of money to achieve predetermined

macroeconomic goals primarily Price Stability

• Policy affecting quantity of money which

determines cost and availability of credit.

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Objectives of monetary

policy

•

Higher economic growth• Higher rate of

employement

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Higher Economic Growth

• Top priority in the economic agenda

• Level of economic growth determines

fulfillment of social and economic need of

people

• Only way to create job and eradicate poverty

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Higher Rate of Employment

• Congruent with economic growth objective

• Go “Hand-in-Hand”

•

High employment is desired: Unemploymentleads to lost output

• Full employment: All resources available in

country are mobilized, National Income ismaximum

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Instruments of Monetary Policy

Quantitative Instruments

Qualitative Instruments

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Quantitative Instruments

• Bank Rate/ Discount Rate:-

The interest rate at which a nation's central

bank lends money to domestic banks. Often

these loans are very short in duration.

• Cash reserve ratio:-

The portion (expressed as a percent) of depositors'balances banks must have on hand as cash. This is a

requirement determined by the country's central bank,

which in the U.S. is the Federal Reserve. The reserve

ratio affects the money supply in a country.

http://www.investopedia.com/terms/b/bankrate.asp

http://www.investopedia.com/terms/r/reserveratio.asp

http://www.investopedia.com/terms/r/reserveratio.asp

http://www.investopedia.com/terms/b/bankrate.asp

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Qualitative Instruments

• Credit Ceiling:-

Total amount somebody is allowed to borrow the

highest amount that a lender will allow somebody

to borrow, for example, on a credit card.

• Change in Margin Lending:

The dollar amount available for withdrawal from an

account with existing marginable positions being

used as collateral.

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Importancein

Developing

Countries

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Development of Financial Institutions

• Underdeveloped country: Lack of “Financial

Institutions”

• People do not use Bank : All income goes to

consumption

• No encouragement in Saving

• No Saving: No Investment

• Obstruction in economic growth

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Monetization of Rural Sector

• Underdeveloped countries: More people live

to rural areas

• Transaction in barter system

• Monetary policy helps to remove barter

system

• eg: Kale Damai

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Development of Organized Money

Market

• Lack of organized money market: Money

market controlled by big and rich money

lenders

• Exploit general class

• Central Bank: Unorganized money market into

organized. Appropriate interest rate.

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Increase in Investment

• Low income: High MPC, no saving

• No Saving : No Investment

•

Monetary Policy: Proper environment forsaving, Capital formation

– Increasing interest rate (encourage saving)

– Loan at appropriate interest rate (encourage

investment)

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Appropriate BOP

• Export <Import

• Export raw material, Import finished goods

•

Monetary Policy: Encourages production of export goods providing subsidies

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Any Queries?

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7/29/2019 monetary-policy-1219485426721922-9


Presented by ……

• Om basantani 04

• Tarun brijwani 10

• Sharma hitesh 43

• Kunal tanwani 47

• Jai kataria 54

monetary-policy-1219485426721922-9

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