RBI Monetary Policy – S2 Group 1 1. Fiscal Policy Use of “Government Expenditure”, and “taxation” to manage the economy. Purpose of Fiscal Policy o Stabilise economic growth o avoiding the boom and bust economic cycle Variables affected by Fiscal Policy in the economy o Aggregate demand and the level of economic activity o The pattern of resource allocation o The distribution of income. 2. Physical Policy Meant to affect only strategic points of the economy. Purpose of Physical Policy o Overcome specific problems such as pricing of particular commodity, shortages or surpluses developing in the economy etc. Variables affected by Physical Policy in the economy o Price and distribution of specific commodity o Investment and production o Foreign Trade 3. Monetary Policy Regulation of supply of Money and Cost and Availability of Credit in the economy. Purpose of Monetary Policy o Maintain price stability o Ensure adequate flow of credit to the productive sectors of the economy o Overall economic growth Variables affected by Monetary Policy in the economy o Interest Rates o Liquidity o Credit Availability o Exchange Rates 4. Monetary Policy – RBI’s role Demand for Money Demand for goods/services Ensuring price Stability by controlling CRR, OMO & Bank Rate savings Control on money Control on bank supply, velocity of credit when prices circulation of money rise/fall during inflation 5. Current Global Scenario Global GDP -0.6% World trade contraction by Tighter credit Recession Production 0.5% Plunge Demand Slump Job losses Aggressive and unconventional measures taken by Governments and central banks
6. CRR Movement
7. Inflation Movement
8. SLR Movement
9. Repo and Reverse Repo rates Movement
10. Limitations Monetary Policy cannot simultaneously stimulate economic demand to reduce unemployment and restrain demand to combat inflation Monetary policy is restricted by the impact of other government actions,...