Investment and Saving Oriented: The monetary policy adopted by the Reserve Bank is both investment and saving oriented. The repo rate is currently 6. Monetary policy can be expansionary and contractionary in nature. Let the banks decide their loan interest rates. Article shared by The main features of the monetary policy of the Reserve Bank of India are given below: 1. The author is professor of technology strategy in University of Texas at Dallas.
Thus, during busy season the Reserve Bank adopts an expansionary credit policy and tightens the liquidity pressures during the slack season. You should either change your study method or change the game- try for some easier exam. Seasonal Variations: The monetary policy is characterised by the changing behaviour of busy and slack seasons. Stability of the price level, thus, becomes the chief aim of monetary policy. Anyways, what to do in the exam? This is the first time the repo rate was increased after the current government took charge. According to the loanable funds theory, this would require a rate of return on investment to be at least 4% of higher, to make investment worthwhile. At present Repo is 8%.
Bank cannot lend it to anyone. According to them, money should play only a role of medium of exchange and not more than that. In 1836, when President 's veto of the recharter of the took effect, he issued the , an that all public lands had to be purchased with hard money. Policies during dear money reduces growth in an economy. Monetary policy is the greatest tool using which boom and depression of business cycles can be controlled by managing the credit to control the supply of money. Not only did the growth expected in capital goods output in 2011-12 not occur, even the growth that took place in 2010-11 was wiped out. A policy in which a government reduces the amount of money being spent in an economy by raising interest rates, making it more expensive to borrow money.
As a result, India's growth plummeted. The , for instance, is an example of a fiat currency. Fiscal Policy: A policy set by the finance ministry that deals with matters related to government expenditure and revenues, is referred to as the fiscal policy. If this exchange rate is very volatile leading to frequent ups and downs in the exchange rate, the international community might lose confidence in our economy. Agriculture does not get the required institutional finances. Therefore, Statement 3 is definitely wrong. Result: Debt recovery tribunal created in 1993.
It has adopted a more positive role of channeling credit to desired sectors. This in turn affects employment as it brings down growth rates. In fact, the overall, trend of money supply has been one of the expansions along with an almost continuous rise in price level. Prices of all goods and services are increasing day by day. This can lead to greater employment opportunities.
Therefore, people switched to money system. However in resent years economists have given the opinion that the monetary policy can help and play a supplementary role in attainting an economic equality. It rested on a simplistic assumption that money supply is all that mattered. Thousands of crores in investments were abandoned and India's economy was set back by a decade. From 100 crores, barely 45 crores left with the bank.
This brought substantial foreign exchange into India and re-ignited growth after 2000. This is what dear money was supposed to do. The trend line in the accompanying chart is sharply negative. Faster economic growth is possible if the monetary policy succeeds in maintaining income and price stability. But since 1951, the Reserve Bank has been following an active monetary policy.
This policy implies that the quantity of money could be so controlled as to have no negative effect on the prices, output and employment. Visit For more on Money, Banking, Finance, Taxation and Economy. Therefore statement 3 is wrong. It refers to absence of involuntary unemployment. When there is no investment in technology and assets capital then economic growth is hampered.
The ratio of the liquid assets to time and demand liabilities is termed as the Statutory liquidity ratio. In one of the reputed book on Banking and finance, author Narayan Nadar claimed taxation can affect money supply. First find a statement that is definitely right or definitely wrong and eliminate choices accordingly. More on that in next article. Bank earns no interest rate or profit on this. A tight monetary policy implies that the rate of growth of money supply is lowered. Selective- can affect money supply in a specific sector of economy e.