Monetary Policy

01-OCT-2014 15:26

    Monetary Policy

    Monetary policy is the policy by which monetary authority of the country, usually a central bank regulates the supply of money in the economy by its control over interest rates so as to uphold price stability and attain high economic growth.

    Objectives of the Monetary Policy of India

    1. Price Stability

    Price Stability necessitates endorsing economic development with substantial prominence on price stability. The focus is to assist the environment which is favorable to the architecture that facilitates the developmental projects to run speedily while also sustaining reasonable price stability.

    2. Controlled development Of Bank Credit

    One of the significant functions of Reserve Bank of India is the controlled development of bank credit & money supply with exceptional attention to seasonal prerequisite for credit without affecting the output.

    3. Promotion of Fixed Investment

    The plan is to augment the productivity of investment by limiting non essential fixed investment.

    4. Restriction of Inventories

    Overfilling of products and stocks becoming out-of-date due to glut of stock frequently results into sickness of the unit. To steer clear of this problem the central monetary authority conducts this vital function of restricting the inventories. The major objective of this policy is to avoid over - stocking & idle money in the organization

    5. Promotion of Exports & Food Procurement Operations

    Monetary policy pays special emphasis to enhance exports & facilitate the trade. It is a self-governing objective of monetary policy.

    6. Desired Distribution of Credit

    Monetary authority has control over the judgments related to the allotment of credit to priority sector & small borrowers.

    7. Equitable Distribution of Credit

    The policy of Reserve Bank intends equitable distribution to all sectors of the economy

    8. To Promote Efficiency

    It tries to amplify the effectiveness in the financial system & tries to incorporate structural changes such as ease operational constraints in credit delivery system, deregulating interest rates, to pioneer new money market instruments etc.

    9. Plummeting the Rigidity

    It encourages more competitive environment & diversification.


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