presentation of banking

8/3/2019 Presentation of Banking

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Monetary

Policy

Submitted by:-Shivangi Aggarwal

Roll no.:- 2908Navjot kaur

Roll no.:-2907

Submitted to:-Mrs. Shallu.


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Monetary Policy

Regulation of supply of Money and Cost and Availability of Credit in the

economy

Variables affected by Monetary Policy in the economy

Interest Rates

Liquidity

Credit Availability

Exchange Rates

Purpose of Monetary Policy

Maintain price stability, ensure adequate flow of credit to the productivesectors of the economy and overall economic growth


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Monetary Policy RBIs role

Demand for Money Demand for goods/services

Control on bankcredit when prices

rise/fall

Ensuring pricestability and ensuring

savings

Control on moneysupply, velocity of

circulation of moneyduring inflation

Instruments such as CRR,OMO & Bank Rate


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0.27 (New low in 30 years)Inflation

6.0%Bank Rate

5.0CRR

24.0%SLR

5.0%Repo Rate

3.5%Reverse Repo Rate

12.75% 13.25%PLR

50.9

5Re/$

Current Rates


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Target Variables

-Inflation

-Interest rate

-Real GDP

-Employment

-Consumption

-Savings-Investment

Policy Variables

- Money supply

- OMO: Liquidity conditions

- policy rates (CRR, repo etc.)

Monetary Policy Influence


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CRR Movement

Before 1991

Government raised funds belowmarket rate

No depth in Government SecuritiesMarket

Regulation of deposit rates

Under developed financial markets,Less financial instruments availability

Result

Complex, distorted interest ratestructure

Adversely affected viability andprofitability of banks

Transparency and norms could not befollowed strictly


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Boost Economy after

2001 Slowdown /

dotcom bubble

Stable CRR from

2004 to 2006

Rise in CRR to control liquidity,

due to Heavy Capital Inflow &

to curb Re Appreciation

CRR hikes to

curb inflation

CRR Cuts to boost

economy after

Sub prime loss /

Global meltdown

CRR Movement


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http://www.rgemonitor.com/emergingmarkets-monitor/archive/200806/

Uncontrolled Inflation despite

Further CRR hikes

CRR hikes proved to

Be effectiveTo curb Inflation

Inflation Down on account

of global credit crunch

Inflation Movement


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Stable SLR from

1998 onwards

SLR Movement

Banks to made available more funds

& More Efficiency


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Repo rate reduction due to make

credit available at cheaper rates

Repo and Reverse Repo rates Movement

Increased rates to control the liquidity


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LAF - To Control Exchange Ratio

Outflow of $ from India Market

Sterilization to

Control rupee

Appreciation

Exchange Rate Movement


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The Surge in Foreign Exchange Reserves

www.rgemonitor.com/blog/economonitor/248231

Sterilization / Selling bonds

& Buying dollars

Forex Reserves Position


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14

Global GDP -0.6%

Estimated PPP

Global Growth0.5%

Recession

Demand Slump

Production

Plunge

Job losses

Tighter credit

World trade

contraction by2.8%

Aggressive and unconventional measures taken by

Governments and central banks

Current Global Scenario


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Money and credit market

Local

Institutions

Domestic

Banks

Domestic MFs NBFC

$Re

Financial Channel

Impact on India


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Cannot simultaneously stimulate economic demand to reduceunemployment and restrain demand to combat inflation

Monetary policy is restricted by the impact of other government

actions, especially Fiscal policy, i.e. decisions about governmentexpenditures and taxation

Problems of an inflexible labour market, inadequate infrastructureand, most important, fiscal policy whose discipline is open to

question limits the effectiveness of the Monetary policy

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Monetary Policy cannot work in isolation!!Monetary Policy cannot work in isolation!!

Limitations Monetary Policy


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Thank You

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