RECENT MONETARY POLICIES IN INDIA

1. BY GROUP 9

2. Monetary policy of India:
Monetary policy is the process by which monetary authority of a country,
generally a 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. In India, the central monetary authority is the
Reserve Bank of India (RBI). is so designed as to maintain the price stability
in the economy

3. Price Stability implies promoting economic development with
considerable emphasis on price stability. The centre of focus is to facilitate
the environment which is favorable to the architecture that enables the
developmental projects to run swiftly while also maintaining reasonable
price stability
Controlled Expansion Of Bank Credit One of the important
functions of RBI is the controlled expansion of bank credit and money supply
with special attention to seasonal requirement for credit without affecting
the output.
Promotion of Fixed Investment The aim here is to increase the
productivity of investment by restraining non essential fixed investment
To promote efficiency
Promotion of exports and food procurement operations

4. Repo rates- 7.75%
Reverse repo rates-6.75%
Bank rate-8.75%
Marginal standing facility rate-8.75
Cash reserve ratio – 4%
Statutory liquidity ratio- 22%

5. keep the policy repo rate under the liquidity adjustment facility (LAF)
unchanged at 8.0 per cent.
keep the cash reserve ratio (CRR) of scheduled banks unchanged at 4.0
per cent of net demand and time liabilities (NDTL).
reduce the liquidity provided under the export credit refinance
(ECR) facility from 32 per cent of eligible export credit outstanding
to 15 per cent with effect from October 10, 2014.
continue to provide liquidity under overnight repos at 0.25 per cent of
bank-wise NDTL at the LAF repo rate and liquidity under 7-day and 14-
day term repos of up to 0.75 per cent of NDTL of the banking system
through auctions.
continue with daily one-day term repos and reverse repos to ensure
smooth liquidity.

6. On the basis of an assessment of the current and evolving
macroeconomic situation, it has been decided to:
 keep the policy repo rate under the liquidity adjustment facility (LAF)
unchanged at 8.0 per cent;
 keep the cash reserve ratio (CRR) of scheduled banks unchanged at 4.0
per cent of net demand and time liabilities (NDTL);
 continue to provide liquidity under overnight repos at 0.25 per cent of
bank-wise NDTL at the LAF repo rate and liquidity under 7-day and 14-
day term repos of up to 0.75 per cent of NDTL of the banking system
through auctions; and
 continue with daily one-day term repos and reverse repos to smooth
liquidity.
 Consequently, the reverse repo rate under the LAF will remain
unchanged at 7.0 per cent, and the marginal standing facility (MSF)
rate and the Bank Rate at 9.0 per cent

7. Domestic activity weakened due to a moderate kharif harvest.
The deficiency in the north-east monsoon rainfall has constrained the
pace of rabi sowing.
Slowdown in rural wage growth
Slump in industrial production in september 2014
The persisting contraction in the production of both capital goods and
consumer goods in Q2 reflected weak aggregate domestic demand.
However, more recent readings of core sector activity, automobile sales
and purchasing managers’ indices suggest improvement in likely
activity. Exports have buffered the slowdown in industrial activity in Q2
but, going forward, require support from partner country growth.

8. The fiscal outlook should brighten because of the fall in crude prices, but
weak tax revenue growth and the slow pace of disinvestment suggest
some uncertainty about the likely achievement of fiscal targets, and the
quality of eventual fiscal adjustment.
Retail inflation, as measured by the consumer price index (CPI), has
decelerated sharply since the fourth bi-monthly statement of September.
This reflects, to some extent, transitory factors such as favourable base
effects and the usual softening of fruits and vegetable prices that occurs
at this time of the year
Source: RBI Bi-monthly policy report

9. Liquidity conditions have eased considerably in Q3 of 2014-15 due to
structural and frictional factors, as well as the fine tuning of the
liquidity adjustment framework.
The Reserve Bank determines the need for open market operations
(OMO) based on its assessment of monetary conditions rather than on
a specific view on long term yields
Merchandise exports declined in October, mainly reflecting sluggish
external demand conditions
Some easing of monetary conditions has already taken place. The
weighted average call rates as well as long term yields for government
and high-quality corporate issuances have moderated substantially
since end-August. However, these interest rate impulses have yet to be
transmitted by banks into lower lending rates.
probably extending into Q3, conditions congenial for a turnaround –
the softening of inflation; easing of commodity prices and input costs;
comfortable liquidity conditions; and rising business confidence as well
as purchasing activity.

10. Source: RBI Bi- monthly policy report

11. RBI must concentrate in reducing Inflation:
Repo<Consumer proce index
RBI must fix the accountability:
forming the MPC committee
Decision by voting
The Government must help RBI:
Fiscal consolidation

12. Focus on exchange rate
Focus on multiple indicators (GDP, inflation)
Focus more on Inflation

13. In recent years, India’s inflation has been highest
among all G20 countries.
India’s inflation has been higher than its trade
competitors.