MONETARY POLICY OF INDIA

CONTENTS
 INTRODUCTION

 OBJECTIVES

 TYPES OF MONETARY POLICY

 INSTRUMENTS OF MONETARY POLICY

 CURRENT MONETARY POLICY IN CASE OF INDIA

 CONCLUSION
 INTRODUCTION
Monetary Policy is the process by which monetary authority of a

country, generally central bank controls the supply of money in the

economy by its control over interest rates in order to maintain price

stability and achieve high economic growth.

RBI is the central bank of india.

 OBJECTIVES
Monetary policy is designed to maintain the following objectives:

 Full Employment

 Price Stability

 Economic Growth

 Promote Saving and Investment

 Full Employment
By providing concessional loans to productive sectors, small and medium

entrepreneurs, special loan schemes for unemployed youth, monetary

policy promotes employment.

 Price Stability
Another major objective of monetary policy in India is to maintain
price stability in the country. It implies Control over inflation.
Price level, is affected by money supply. Monetary policy regulates
money supply to maintain price stability.
 Economic Growth
An important objective of monetary policy is to make available
necessary supply of money and credit for the economic growth of
the country. Those sectors which are quite significant for the
economic growth are provided with adequate availability of credit.
PROMOTE SAVING AND INVESTMENT
By regulating the rate of interest and checking inflation, monetary
policy promotes saving and investment. Higher rates of interest
promote saving and investment.
TYPES OF MONETARY POLICY

There are 2 types of monetary policies –

 Expansionary monetary policy

 Contractionary monetary policy

 Expansionary Monetary Policy
The expansion policy is undertaken with an aim to increase the
aggregate demand by cutting the interest rates and increasing the supply
of money in the economy.

The money supply can be increased by –

 Buying the government bonds

 Lowering the interest rates and reserve ratio

 Contractionary Monetary Policy
 The Contractionary Monetary policy is applied when the inflation is a
problem and economy needs to be slow down by curtailing the supply
of money.

 the Contractionary policy is adopted with an aim to decrease the

money supply and the spendings in the economy. This is primarily done
by increasing the interest rates so that the borrowing becomes
expensive.
 Instruments Of Monetary Policy

1. QUALITATIVE INSTRUMENTS – These tools are not direct towards

the quality of credit or the use of the credit.

 Bank Rate

 Open Market Operations

 Publicity

 Regulation Of consumer credit

 Moral Suasion

 Direct Action
 QUANTITATIVE INSTRUMENTS –

These tools are related to the quantity of volume of the money, they
are designed to regulate or control the total volume of bank credit.
The general tools of credit controls comprises of following
instruments –

 Bank rate policy

 OMO ( open market operation)

 VRR