Scribd
Upload
51 views

Monetary Policy Is The Process by Which The

Monetary policy controls the supply, availability, and cost of money in order to achieve economic growth and stability. It underwent changes in India in the 1990s as the economy opened up and reforms were implemented, moving from controlling credit flows to using interest rates. This was influenced by greater trade and capital flows as India's economy integrated more into the global market. The Reserve Bank of India uses monetary policy to maintain price stability and ensure adequate credit to productive sectors through tools that impact money supply, interest rates, exchange rates, asset prices, and the real economy.

Uploaded by

S_JITH
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
51 views

Monetary Policy Is The Process by Which The

Monetary policy controls the supply, availability, and cost of money in order to achieve economic growth and stability. It underwent changes in India in the 1990s as the economy opened up and reforms were implemented, moving from controlling credit flows to using interest rates. This was influenced by greater trade and capital flows as India's economy integrated more into the global market. The Reserve Bank of India uses monetary policy to maintain price stability and ensure adequate credit to productive sectors through tools that impact money supply, interest rates, exchange rates, asset prices, and the real economy.

Uploaded by

S_JITH
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
You are on page 1/ 4

Monetary policy is the process by which the

government, central bank, or monetary authority of a


country controls (i) the supply of money, (ii) availability
of money, and (iii)cost of money or rate of interest, in
order to attain a set of objectives oriented towards the
growth and stability of the economy.

Monetary policy in India underwent significant


changes in the 1990s as the Indian
Economy became increasing open and financial
sector reforms were put in place. in the
1980s,monetary policy was geared towards
controlling the qunatam,cost and directions
Of credit flow in the economy. the quantity variables
dominated as the transmission
Channel of monetary policy. Reforms during the
1990s enhanced the sensitivity of price
Signals of price signals from the central bank,
making interest rates the increasingly
Dominant transmission channel of monetary policy
in India.
The openness of the economy, as measured by the
ratio of merchandise trade(exports
Plus imports) to GDP, rose from about 18% in 1993-
94 to about 26% by 2003-04.
Including services trade plus invisibles, external
transactions as a proportion of GDP
Rose from 25% to 40% during the same
period.Alongwith the increase in trade as a
Percentage of GDP, capital inflows have increased
even more sharply,foreign currency
Assets of the reserve bank of India(RBI) rose from
USD 15.1 billion in the march 1994
To over USD 140 billion by march 15,2005.these
changes have affected liquidity and
Monetary management. monetary policy has
responded continuously to changes in
Domestics and international macroecomic
conditions. In this process, the current
monetary operating framework has relied more on
outright open market operations and
Daily repo and reserve repo operations than on the
use of direct instruments.overight
Rate are now gradually emerging as the principal
operating target.
The Monetary and Credit Policy is the policy
statement, traditionally announced twice a year,
through which the Reserve Bank of India seeks to
ensure price stability for the economy. These factors
include - money supply, interest rates and the
inflation.
Objectives :-

The objectives are to maintain price stability and


ensure adequate flow of credit to the
productive sectors of the economy. Stability for the
national currency (after looking at
prevailing economic conditions), growth in
employment and income are also looked into.
The monetary policy affects the real sector through
long and variable periods while the
financial markets are also impacted through short-
term implications.
There are four main 'channels' which the RBI looks at:

• Quantum channel: money supply and credit (affects real


output and price level
through changes in reserves money, money supply and
credit aggregates).

• Interest rate channel.

• Exchange rate channel (linked to the currency).

• Asset price.
Financial monetary policies like supply of money in the
economy can directly impact the objectives of the
economy therefore, various tools are used in financial
monetary policies to achieve the objectives of the
economy. For example, if the state bank(monitor of
monetary policy) aims to increase the exports of the
products in the international market then it can change the
exchange rate of the country by increasing the money
supply in the economy. This increase in money supply
will lower the exchange rate of the currency and the
products of the country will become cheaper in the
international markets and as a result this will increase the
exports of the country. On the other hand, it will also lead
to the increase in inflation in the economy, therefore, such
tools are very carefully chosen.

You might also like