PRASHANT MAVANI. Senior Faculty: StudyIQ

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2 . P R O F I L E PRASHANT MAVANI MSc. in Management, University of Surrey (UK) Senior Faculty: StudyIQ Follow/Contact Download PDF notes of this lecture from my FB Page

4 What is a Monetary Policy? Word MONETARY has its root in Latin word MONETA meaning MONEY. Macroeconomic Management: A) Money Supply B) Interest Rate

5 Objectives of Macroeconomic Policy To achieve macroeconomic objectives such as A.Inflation B.Consumption C.Growth D.Liquidity

6 How it works and why it matters?

Reserve System Credit Control Policy Moral

Increasing money supply and reducing interest

7 How it is implemented by RBI? Open Market Operations Bank Rate Reserve System Credit Control Policy Moral Persuasion Through many other instruments Monetary policy can be expansionary and contractionary in nature. Increasing money supply and reducing interest rates indicate an expansionary policy. The reverse of this is a contractionary monetary policy.

8 Who decides? Earlier on used to take its monetary policy decisions based on the multiple indicator approach. account inflation, growth, employment, banking stability and the need for a stable exchange rate

approach and make inflation targeting the primary objective of its monetary policy.

9 Introduction of Monetary Policy Committee- RBI set up an Expert Committee under Urijit Patel to revise the monetary policy framework January 2014: suggested that RBI abandon the multiple indicator approach and make inflation targeting the primary objective of its monetary policy. It also mooted having Monetary Policy Committee (MPC). For a balanced decision Decisions could be made through majority vote

10 Monetary Policy Committee- 6-member panel Three members from the RBI the Governor, a Deputy Governor and another official Three independent members to be selected by the Government Note: If there s a tie between the Ayes and the Nays, the RBI governor gets the deciding vote. Chairperson Gov. of RBI Dy. Governor Officer RBI Chetan Ghate Pami Dua Ravindra Dholakia

11 February 2018: 6 th Bi-Monthly MPC kept the short-term lending rate/repo rate, 6% The reverse repo, at which RBI borrows from In its last review in December the central bank had kept rate unchanged while in August it had slashed the benchmark lending rate by 0.25 percentage points to 6 percent, the lowest in 6 years. Stance: Neutral gives it the flexibility to change gears in either direction Objective of achieving the medium-term target for consumer price index (CPI) inflation of 4 percent within a band of +/- 2 percent, while supporting growth.

12 Stand taken MPC Members- Dr. Chetan Ghate, Dr. Pami Dua, Dr. Ravindra H. Dholakia, Dr. Viral V. Acharya and Dr. Urjit R. Patel voted in favour of the monetary policy decision. Dr. Michael Debabrata Patra voted for an increase in the policy rate of 25 basis points. The RBI's policy announcement on Wednesday was the first after the unveiling of Budget 2018 and came amid a turmoil in global financial markets. Despite the RBI keeping interest rate steady, many analysts see the possibility of monetary policy tightening down the road after surging oil and food prices pushed consumer inflation to a 17-month high of 5.21 per cent in December - well above the RBI's 4 per cent target in the medium term.

13 Inflation outlook- It raised its March-end Consumer Price Index (CPI) inflation forecast to 5.1% and projected an inflation range of % in the first half of the next fiscal year. The inflation outlook is clouded by several uncertainties, noted the panel. It listed the staggered impact of housing rent allowance increases by the state government, rising prices of crude oil and other commodities owing to a pickup in global growth, increase in minimum support prices (MSPs) for kharif crops, the budget s hike in custom duties and the fiscal slippage as several factors. A pick-up in global growth may exert further pressure on crude oil and commodity prices with implications for domestic inflation. There is need for vigilance around the evolving inflation scenario in the coming months, the panel noted.

14 GVA growth seen at 6.6% GVA growth for is projected at 6.6 per cent down from its earlier forecast of 6.7 per cent. Gross value added, is the measure of the value of goods and services produced in an area, industry or sector of an economy. GVA is a key input of GDP that strips out taxes and subsidies For , the central bank projects higher GVA growth for at 7.2 per cent.

15 Good signs- GST implementation is stabilising, which augurs well for economic activity. Second, there are early signs of revival in investment activity as reflected in improving credit offtake. Third, the process of recapitalisation of public sector banks has got underway. Large distressed borrowers are being referenced for resolution under the Insolvency and Bankruptcy Code (IBC). This should improve credit flows further and create demand for fresh investment," the RBI said in a statement. Export growth is also expected to improve further on account of improving global demand, the RBI added.

17 Subscribe.G O O D B Y E & J A I H I N D Hit: Notification Bell Like Comment Download PDF notes of this lecture from our Telegram Channel Do you know? Nalanda = Na+alam+Daa, meaning no stopping of the gift of knowledge So do gift share this lecture with your loved ones.

Fifth Bi-monthly Monetary Policy Statement, Resolution of the Monetary Policy Committee (MPC) Reserve Bank of India*

Fifth Bi-monthly Monetary Policy Statement, 2017-18 Resolution of the Monetary Policy Committee (MPC) Reserve Bank of India* On the basis of an assessment of the current and evolving macroeconomic situation