Monetary Policy and Credit

Management of the RBI

Presented To: Ms.Megha.Kamat

Canara College

Mangalore

Presented By: Shailaja

Canara College

Mangalore

The RBI has been constructed as an apex authority for monetary management.

Its primary function is to formulate and administer monetary policy. Monetary

policy refers to “ the use of instruments with in the control of the Central bank to

influence the aggregate demand for goods and services by regulation of the

money and supply and credit”

Introduction

Methods of Credit Control

Bank Rate

Repo Rate

Open Market Operations

Variation in the Cash Reserve Ratio

Selective Credit Control

Moral Suasion

Evaluation of RBI’S Credit Control Policy

The RBI used bank rate, open market operations and variable cash reserve ratios as

instruments of monetary control in India. There are selective methods of credit control as

well. The bank has followed the monetary policy in such a way that credit needs are met for

production purposes, but credit facilities are restricted for speculative purposes.

There have been some other causes responsible to the limited effectiveness of RBI’S Credit

Control Policy. These are:

Availability of funds to banks from different sources, reducing their dependence on the

RBI.

Little coordination between monetary and fiscal policies.

Yields on government securities do not match with the money market conditions.

Existence of parallel economy.

Conclusion

Monetary policy cannot function effectively without a suitable

coordination with the fiscal policy. It is essential that both the polices

should move in tandem.

Bibliography

Seth.M.L. Money, Banking, International Trade and Public Finance. Laxmi Naran Agarwal