Monetary Policy in Action
Transcript of Monetary Policy in Action
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MONETARY POLICY IN ACTION
Shrirang Shirodkar 05305007Alok Jadhav 05305041John Kati 05305046Sandeep Shelke 05305402
Under the guidance ofProf. K. Narayanan
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Agenda
Introduction
Annual Policy Statement
First Quarter Review
Mid Term Review
Third Quarter Review
Recent developments References
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Introduction
What is Monetary Policy?
Types of Policies
Objectives
Monetary Measures
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Objectives
Inflation Control
Credit Growth
Employment Price Stability
Economic Growth
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Measures
Least Inflation Policy
Interest Rates
CRR and SLR Monetary Base
Reserve Requirements
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Annual Statement of
Monetary Policy 2005-06 Monetary developments in 2004-05
GDP placed at 6.9%
Annual inflation rate stood at 5% Money supply (M3) increased by 12.8%
Increase in non-food credit
Financial markets generally stable
Widening of trade deficit
Increased risks in global financial markets
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Stance of Monetary Policy
Factors to be considered
Adequate credit growth needs to be ensured
Trends in capital market indicate surplus Growth may get moderated by oil markets
Significantly higher borrowings
Heavy growth in non-food credits
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Stance of Monetary Policy
GDP growth placed at 7%
Inflation rate at 5-5.5%
Projected expansion of M3 at 14.5% Credit increase by 19%
Key Points Provision of suffice liquidity for credit growth
Emphasis on price stability
Interest rate conducive to stability and growth
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Monetary Measures
Bank rate kept unchanged at 6.0%
Reserve Repo Rate increased by 25 basic
points to 5.0% Cash Reserve Ratio (CRR) kept unchanged at
5.0%
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Quarterly Reviews
The Annual Policy Statement, proposedquarterly reviews of Monetary Policy.
Benefit To take specific measures as the evolving
circumstances warrant.
Mainly consist, Review of Macroeconomic and Monetary
Developments in the previous quarter. Stance of Monetary Policy for the remaining part of
year.
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First Quarter Review 2005-06
Key Developments
Increase in index ofIndustrial Production.
Continued good performance of corporate sector.
Good growth in manufacturing output. Improved level of business confidence.
Increase in credit of scheduled commercial banks .
Inflation remained on expected lines.
Oil prices in the international markets remained high.
Stance of Monetary Policy
No major change from the Annual Policy Statement.
Respond to evolving situations as per unfolding of risks.
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Mid Term Review of 2005-06
Monetary Developments
Oil prices in international markets remained high
I
ncrease in overall industrial growth Non-food credit growth high
Stance of Monetary Policy
Maintain appropriate liquidity to meet credit needs
Keep a watch on the evolving inflationary scenario Take prompt measures, to stabilize inflationary
expectations
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Recent developments
Liquidity crunch raising concerns about the economyscapacity to sustain the recent high-growth rates.
Banks demanding cut in the cash reserve ratio (CRR) to
infuse liquidity. RBI also exploring the possibility of releasing the excess
funds maintained under the statutory liquidity ratio(SLR).
OfLate, liquidity position appears to have improved with
the RBI resorting to the reverse repo window.
RBIs purchase of foreign exchange inflows for nearly twomonths has also led to injection of liquidity into thesystem.
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References
RBI Monetary Policy Statements
http://rbi.org.in
Indian Express (April 3, 2006)