Evaluate the Statement:"Investors should be aware of the

monetary policy before planning their investments“.

Illustrate with example.

PGDBM-6Group-4

Presented By: Enrollment No.Alpha Nayak E13CC1079751Anupriya Singh E13CC1078654

Karishma Biswal E13CC1081714Smruti Ranjita Suar E13CC1079865

Subhasantak Mohanty E13CC1081206Sujnani Kumari Gupta E13CC1080945

ET F

inPro

Mod

ule 0

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Agenda1. Introduction

2. Monetary policy

3. Key Objectives of Monetary Policy

4. Instruments used by RBI under its monetary policy

5. Illustration using 3 Investment Options

6. Implication on Bank deposits

7. Implication on Stock market

8. Implication on Government Securities

9. Conclusion

Introduction While economic education and awareness make private decision making

easier, this knowledge and insight also may make the central bank’s job easier. A central bank’s commitment to education, information, and transparency enhances that central bank’s credibility , as well as the public’s ability to understand and anticipate policy decisions.

How does this work?

If the public is able to accurately anticipate monetary policy decisions, then it also can incorporate better-informed expectations into private decision making.

Central banks can contribute to this awareness in at least two ways: through transparency in monetary policy making and public information and education efforts.

source:SF%20Fed%20%20Awareness%20about%20monetary%20lpolicy

Monetary policy Monetary policy is the macroeconomic policy laid down by the

central bank.

It involves management of money supply, interest rate and the demand side of economic policy used by the government of a country to achieve macroeconomic objectives like inflation, consumption, growth and liquidity.

The RBI implements the monetary policy through open market operations, bank rate policy, reserve system, credit control policy, moral suasion and through many other instruments.

Key Objectives of Monetary Policy

To maintain Price Stability (to

control the rate of inflation)

To achieve high Economic Growth (to attain higher

percentage growth of GDP)

CRR

• The percentage of the bank deposits that banks have to keep with RBI in the form of reserves or balances.

SLR

• The quantity of liquid assets that a bank has to keep with itself (in the form of cash, precious metals, etc.) for its time and demand liabilities.

OMO

• The operation of buying and selling of primarily government bonds from or to the public or banks.

Repo

rate

• The rate at which RBI lends to commercial banks generally against government securities(for a short term).

Bank

rate

• The rate at which RBI lends to commercial banks through its discount window to help the banks meet depositor’s demands and reserve requirements(for a long term).

Instruments used by RBI under its Monetary Policy

Illustration using3 Investment Options

Bank Deposit

Government Securities

Stock Market

Implication on Bank Deposit

CRR

CRR increases (RBI targets inflation),

deposit rate increases.

CRR decreases, (RBI targets economic growth), deposit

rate decreases

SLR

SLR increases (RBI targets inflation),

deposit rate increases.

SLR decreases (RBI targets economic growth), deposit

rate decreases

Implication on Bank Deposit (contd.)

OMO

When G-secs are sold, less money prevails in the system,

(aim behind it being controlling inflation), deposit

rate increases

When G-secs are bought (issued previously),more

money prevails in the system, (aim behind it being higher economic growth), deposit

rate decreases

Implication on Bank Deposit (contd.)

Repo rate

Repo rate increases, lending intrest rate increases, deposit rate too increases

Repo rate decreases, lending intrest rate decreases, deposit rate too decreases

Bank rate

Bank rate increases, lending intrest rate increases, deposit rate too increases

Bank rate decreases, lending intrest rate decreases, deposit rate too decreases

Implication on Stock Market

CRR

CRR increases, Economic growth decreases,

production cost increases, profitability of company decreases, stock market

crashes

CRR decreases, Economic growth increases,

production cost decreases, profitability of company increases, stock market

flourishes

SLR

SLR increases, Economic growth decreases,

production cost increases, profitability of company decreases, stock market

crashes

SLR decreases, Economic growth increases,

production cost decreases, profitability of company increases, stock market

flourishes

Implication on Stock Market (contd.)

OMO

When G-secs are sold, less money prevails in the

system, (aim behind it being controlling inflation),

production & product cost increases, profit to company

decreases, share price decreases & stock market

crashes

When G-secs are bought (issued previously),more

money prevails in the system, (aim behind it being

attaining higher economic growth), production & product cost decreases,

profit to company increases, share price increases & stock

market booms

Implication on Stock Market (contd.)

Repo rate

Repo rate increases, lending intrest rate increases,

production & product cost increases, profit to company

decreases, share price decreases & stock market

crashes

Repo rate decreases, lending intrest rate decreases,

production and product cost decreases, profit to company

increases, share price increases & stock market

booms

Bank rate

Bank rate increases, lending intrest rate increases,

production & product cost increases, profit to company

decreases, share price decreases & stock market

crashes

Bank rate decreases, lending intrest rate decreases,

production and product cost decreases, profit to company

increases, share price increases & stock market

booms

Implication on Government securities

CRR

CRR increases (RBI is targeting inflation),

further, RBI sells G-sec bonds to pull out excess money from the system

CRR decreases (RBI is targeting economic

growth), further, RBI buys pre-issued G-sec

bonds to pump in more money into the system

SLR

SLR increases (RBI is targeting inflation),

further, RBI sells G-sec bonds to pull out excess money from the system

SLR decreases, (RBI is targeting economic

growth), further, RBI buys pre-issued G-sec

bonds to pump in more money into the system

Implication on Government securities (contd.)

OMO

When G-secs are sold, RBI’s aim is to pull out money

from the system (to control inflation)

When G-secs are bought (issued previously), RBI’s

aim is to pump more money into the system (to attain higher economic growth)

Implication on Government securities (contd.)

Repo rate

Repo rate increases, lending interest rate increases (RBI

is targeting inflation), further, RBI sells G-sec

bonds to pull out excess money from the system

Repo rate decreases, lending intrest rate decreases (RBI is targeting economic growth), further, RBI buys pre-issued

G-sec bonds to pump in more money into the system

Bank rate

Bank rate increases, lending interest rate increases (RBI

is targeting inflation), further, RBI sells G-sec

bonds to pull out excess money from the system

Bank rate decreases, lending intrest rate decreases (RBI is targeting economic growth), further, RBI buys pre-issued

G-sec bonds to pump in more money into the system

ConclusionAwareness about the Monetary policy of a country is undoubtedly

beneficial for the financial well-being of its citizens.

People unaware of it cannot yield (or make) the most from a situation at hand, as it leaves them clueless about where the economy is

heading.

Knowledge about the economy, changes people’s perception & vision.

If they know well, only then can they have a financial plan that is better & healthy.

For, “Knowledge is Power &

Power ofcourse, fetches Wealth”