DO you Know the difference between Monetary Policy and Fiscal Policy? To know more Click here.
Monetary policy is the macroeconomic policy laid down by the central bank. It involves management of money supply and interest rate and is the demand side economic policy used by the government of a country to achieve macroeconomic objectives like inflation, consumption, growth and liquidity.
The term monetary policy is also known as the 'credit policy' or called 'RBI's money management policy' in India. In India, the Reserve Bank of India (RBI) is in charge of monetary policy. Monetary policy is one of the ways that the Indian government attempts to control the economy. If the money supply grows too fast, the rate of inflation will increase; if the growth of the money supply is slowed too much, then economic growth may also slow.
As of 29 January 2014, the key indicators are
I. Lack of Coordination between Monetary and Fiscal Policy
II. Large percentage of MOney never come in the mainstream economy.
III. Existence of non-monetized economy- barter type or similar types do exists.
IV. Excess Non-Banking Financial Institutions
V. Existence of Unorganized Financial Markets
Recommended Reading:
I.Recommendations of Urjit Patel Committee Report to Review and Strengthen the Monetary Policy Framework .
II.Instruments of Monetary Policy used by the RBI
Monetary policy:
Monetary policy is the macroeconomic policy laid down by the central bank. It involves management of money supply and interest rate and is the demand side economic policy used by the government of a country to achieve macroeconomic objectives like inflation, consumption, growth and liquidity.
The term monetary policy is also known as the 'credit policy' or called 'RBI's money management policy' in India. In India, the Reserve Bank of India (RBI) is in charge of monetary policy. Monetary policy is one of the ways that the Indian government attempts to control the economy. If the money supply grows too fast, the rate of inflation will increase; if the growth of the money supply is slowed too much, then economic growth may also slow.
As of 29 January 2014, the key indicators are
| Indicator | Current rate |
| Inflation | 8.10% |
| Bank rate | 9% |
| CRR | 4.00% |
| SLR | 23% |
| Repo rate | 8.00% |
| Reverse repo rate | 7.00% |
| Marginal Standing facility rate | 9.00% |
Key Objectives of Monetary Policy
- Rapid Economic Growth
- Price Stability
- Exchange Rate Stability
- Balance of Payments (BOP) Equilibrium
- Full Employment
- Neutrality of Money
- Equal Income Distribution
Obstacles In Implementation of Monetary Policy:
I. Lack of Coordination between Monetary and Fiscal Policy
II. Large percentage of MOney never come in the mainstream economy.
III. Existence of non-monetized economy- barter type or similar types do exists.
IV. Excess Non-Banking Financial Institutions
V. Existence of Unorganized Financial Markets
Recommended Reading:
I.Recommendations of Urjit Patel Committee Report to Review and Strengthen the Monetary Policy Framework .
II.Instruments of Monetary Policy used by the RBI
