Transcript 1. Monetary authority

Apna Sapna Money-Money
RBI
Inflation
ByRahul Jain
Inflation
In economics, inflation is an increase in the general level
of prices of a given kind. General inflation is referred
to as a rise in the general level of prices.
Measuring Inflation
Use of price index system for measuring inflation.
For example, The Consumer Price Index (CPI) is a
measure of the average change over time in the prices
paid by urban consumers for a market basket of
consumer goods and services
Causes of Inflation
 Cost Push
 Demand Led
Costs of Inflation
 It leads to uncertainty about the value of money
 It can lead to recession
 It can hurt the productivity
Fear of Inflation
 Can destabilize the economy
 Can lead to reduction in Purchasing Power
Monetary Policy
The term "monetary policy" refers to the actions
undertaken by a central bank, such as the RBI, to
influence the availability and cost of money and credit
to help promote national economic goals.
Tools of monetary policy
 Thus the three ways in which the federal reserve can
change the money supply are
1. Change in Bank Rate
2. Open Market operations like buying and purchasing
of government securities
3. Change in Cash reserve ratio and SLR
SLR REQUIREMENTS
 Banks, NBFCs, and HFIs are required to invest in
government securities and other approved debt
instruments and securities to comply with the SLR
requirements of the RBI.
 The SLR, which is the minimum level of investment in
approved securities, computed daily, is a percentage of
the outstanding net demand and time liabilities
(NDTL) of banks.
 For NBFCs and HFIs, SLR is a percentage of their
outstanding public deposits.
Increase in Money Supply
1. Reduction in bank rate, specific interest rate on
loans and savings
2. Buying of government securities from bank to
increase the money supply
3. Reduction in the variable reserve ratios like
statutory liquidity ratio and cash reserve ratio.
(Mishra & Puri)
Reduction in Money Supply
1. Rise in bank rate, specific interest rate on loans and
savings
2. Selling of government securities to bank to curb
inflation and to contract the money supply
3. Increase in the variable reserve ratios like statutory
liquidity ratio and cash reserve ratio.
•The Reserve Bank of India was established
on April 1, 1935 in accordance with the
provisions of the Reserve Bank of India Act,
1934.
•The Central Office of the Reserve Bank was
initially established in Calcutta but was
permanently moved to Mumbai in 1937. The
Central Office is where the Governor sits and
where policies are formulated.
•Though originally privately owned, since
nationalization in 1949, the Reserve Bank is
fully owned by the Government of India.
Preamble
"...to regulate the issue of Bank Notes and keeping of
reserves with a view to securing monetary stability in
India and generally to operate the currency and credit
system of the country to its advantage."
Central Board
 The Reserve Bank's affairs are governed by a central
board of directors. The board is appointed by the
Government of India in keeping with the Reserve Bank
of India Act.
 Appointed/nominated for a period of four years
 Constitution:
 Official Directors

Full-time : Governor and not more than four Deputy Governors
Central Board
 Non-Official Directors


Nominated by Government: ten Directors from various fields
and one government Official
Others: four Directors - one each from four local boards
 Functions : General superintendence and direction of
the Bank's affairs
Local Boards
 One each for the four regions of the country in
Mumbai, Calcutta, Chennai and New Delhi
Membership:
 consist of five members each
 appointed by the Central Government
 for a term of four years
 Functions : To advise the Central Board on local
matters and to represent territorial and economic
interests of local cooperative and indigenous
banks; to perform such other functions as
delegated by Central Board from time to time.
Main objectives
1. Monetary authority
 Formulates, implements and monitors the Monetary
Policy, announced twice a year.
 Announces the Credit Policy, announced twice a year in April it announces new policy initiatives, the
October pronouncement is a review of the April policy.
 Objective: Maintaining price stability and ensuring
adequate flow of credit to productive sectors.
 Maintain optimum Liquidity in the economy.
References
 www.bls.gov
 Mishra & Puri , MACRO ECONOMICS. Sultan Chand
& Sons
 www.americanchronicle.com/articles/viewArticle.asp
 www.economics.about.com
 www.investopedia.com
 www.en.wikipedia.org