me final ppt(2)
TRANSCRIPT
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INTRODUCTION
The Reserve Bank of India is the central bank of the
country entrusted with monetary stability, the
management of currency and the supervision of the
financial as well as the payments system.
The Reserve Bank of India was established on April 1,
1935 in accordance with the provisions of the Reserve
Bank of India Act, 1934.
The Central Office of the Reserve Bank has been in
Mumbai since inception.
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FUNCTIONS OF RBI
Bank of issue
Sole right to issue bank notes of all denominations. The
distribution of one rupee notes and coins and small coins all overthe country is undertaken by the Reserve Bank as agent of the
Government.
Banker to Government
Act as Government banker, agent and adviser. The Reserve Bank
of India helps the Government - both the Union and the States to
float new loans and to manage public debt.
It acts as adviser to the Government on all monetary and banking
matters.
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Bankers' Bank
Every scheduled bank was required to maintain with the Reserve Banka cash balance equivalent to 5% of its demand liabilites and 2 per cent
of its time liabilities in India. The scheduled banks can borrow from the
Reserve Bank of India on the basis of eligible securities.
Controller of Credit
It has the power to influence the volume of credit created by banks in
India.
Custodian of Foreign Reserves
The Reserve Bank of India has the responsibility to maintain the
official rate of exchange. Besides maintaining the rate of exchange of
the rupee, the Reserve Bank has to act as the custodian of India's
reserve of international currencies
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Supervisory function
Powers of supervision and control over commercial and
co-operative banks, relating to licensing and establishments,
branch expansion, liquidity of their assets, management and
methods of working, amalgamation, reconstruction, and
liquidation.
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It is concerned with changing the supply of money
stock and rate of interest for the purpose of stabilizing
the economy at full employment or potential output
level by influencing the level of aggregate demand.
At times of recession monetary policy involves the
adoption of some monetary tools which tends to
increase the money supply and lower interest rate so as
to stimulate aggregate demand in the economy.
At the time of inflation monetary policy seeks to
contract aggregate spending by tightening the money
supply or raising the rate of return.
MONETARY POLICIES
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Objectives :- To ensure the economic stability at full employment or
potential level of output.
To achieve price stability by controlling inflation and
deflation.
To promote and encourage economic growth in the
economy
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WEAPONS :-
BANK RATE: Bank Rate is the rate at whichcentral bank of the country (in India it is RBI) allows
finance to commercial banks
REPO RATE: Repo (Repurchase) rate is the rate
at which the RBI lends shot-term money to the banks
REVERSE REPO-RATE: Reverse Repo rate is
the rate at which banks park their short-term excess
liquidity with the RBI.
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VARIABLE RESERVE RATIO :Commercial banks in every country maintain, either by the
requirement of law by or custom , a certain percentage of their
deposits in the form of balances with the central bank .The central bank has the power to vary this reserve requirement
and the variation in the reserve requirements affect the credit
creating capacity of commercial banks
CRR : CRR means Cash Reserve Ratio. Banks in India are
required to hold a certain proportion of their deposits in the form
of cash.
SLR : Every bank is required to maintain at the close of
business every day, a minimum proportion of their Net Demand
and Time Liabilities as liquid assets in the form of cash, gold and
un-encumbered approved securities
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OPEN MARKET OPERATIONS
Its refer broadly to the purchase and sale by
the Central Bank of a variety of assets, such
as foreign exchange, gold, government
securities and even company shares. InIndia, they are confined to the purchase and
sale of Government securities.
To increase the money supply, the centralbank buys securities from commercial banks
and public.
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FISCAL POLICY
Fiscal policy is another type of budgetary policy in relation to
taxation, public borrowing, and public expenditure.
Once the fiscal situation was decided and determined by thegovernment, it was the central banks responsibility to ensure
that monetary stability was maintained and the governments
borrowing programme was managed with minimum
disruptions, in terms of stability
Involves an increase in taxation and decrease in government
spending.
Increase in taxes leads to reduce in private expenditure.
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1. To achieve desirable price level:
The stability of general prices is necessary for economic
stability. The maintenance of a desirable price level has
good effects on production, employment and nationalincome. Fiscal policy should be used to remove;
fluctuations in price level so that ideal level is maintained.
2.To Achieve desirable employment level:The efficient employment level is most important in
determining the living standardof the people. It is
necessary for political stability and for maximization
ofproduction. Fiscal policy should achieve this level.
OBJECTIVEOFFISCAL
POLICY
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Weapons ofFiscal Policy
1. Taxation Policy:Increase in taxes would effectively reduce private expenditure,
in an effect to minimise inflationary pressures. It is known that
when more taxes are imposed, the size of the disposable income
diminishes, also the magnitude of the inflationary gap in regardsto the availability of the supply of goods and services.
2. Deficit financing policy:
RBI has to issue new currency notes. But this decision should be
taken very carefully because increasing trend of deficit financing
will decrease the value of currency in world market and it will
increase the prices of commodities in commodity market.
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3. Government loan:
The government should avoid paying back any of its past
loans during inflationary periods, in order to prevent anincrease in the circulation of money
4. Public debt:
The effects of a large deficit budget, which is mainly responsible for inflation, can be partially offset by covering
the deficit through public borrowings.
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POINT TO REMEMBER
Keynes, however, suggested a programme of compulsory savings,such as deferred pay as an anti-inflationary measure. Deferred pay
indicates that the consumer defers a part of his or her wages by
buying savings bonds (which, of course, is a sort of public
borrowing), which are redeemable after a particular period of time,
this is sometimes called forced savings. Additionally, private
savings have a strong disinflationary effect on the economy and an
increase in these is an important measure for controlling inflation.
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Other Direct Measures
Direct controls refer to the regulatory measures undertaken to convertan open inflation into a repressed one. Such regulatory measures
involve the use of direct control on prices and rationing of scarce
goods.
The function of price control is a fix a legal ceiling, beyond whichprices of particular goods may not increase.
1.)Increasing Production:
(a) One of the foremost measures to control inflation is to
increase the production of essential consumer goods like food,
clothing, kerosene oil, sugar, vegetable oils, etc
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(b) Rationing:
Rationing aims at controlled distribution of scarce goods so as to make
them available to a large number of consumers. It is applied to essential
consumer goods such as wheat, rice, sugar, kerosene oil, etc. It is meant tostabilise the prices of necessaries and assure distributive justice. But it is
very inconvenient for consumers because it leads to artificial shortages,
corruption and black marketing.
(c) Direct Control:
Direct Price control is another measure of direct control to check
inflation. It means fixing an upper limit for the prices of essential
consumer goods. They are the maximum prices fixed by law andanybody charging more than these prices is punished by law. But it is
difficult to administer in this case.
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Some Latest Updates :Price rise has become a problem for the Indianeconomy and to control the price rise, the Indian
government is taking certain measures.
It may be noted, that inflation has declined but to an
extent.
Measures include, withdrawing of the export incentives on steel
and cement, banning exports of non basmati rice etc. Now the
effect of the recent measures by the RBI can only be assessed in the
coming future.
Inflation Rate decreased from 8.62% to
8.58 % in October 2010
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Finance Minister Pranab Mukherjee has said inflation is a
price to pay for rapid growth. There are suggestions in the
government of a "new normal" of inflation running at 6 to
8 percent, from the roughly 5 percent considered acceptable
by policymakers in recent years.
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Under attack for rising prices, prime minister Manmohan Singh said the
government was making every possible effort to control "high inflation"
and insulate poor from its adverse impact.
He said "I know that in the last few months high inflation has caused you
difficulties. It is the poor who are the worst affected by rising prices,
especially when the prices of commodities of every day use like foodgrains,
pulses, vegetables increase.
He said that to achieve goals, the government did not need any new
scheme or programme to be launched. "However, we do need to
implement the schemes we have already started more effectively,
minimising the chances of corruption and misuse of public money."
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Latest Rates :
1. CRR 6 %
2. SLR 25 %
3. REPO RATE 6.25 %
4. REVERSE REPO RATE- 5.25 %
5. BANK RATE 6.0 %
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Conclusion :
From various monetary, fiscal and other
measures it becomes clear that to control
inflation government should adopt all measuressimultaneously.
That the success of the fiscal measures to control inflation
needs a matching demand-supply equation is vindicated by
Indias failure to check price rise in 2010. RBI has hiked policy
rates repeatedly during the last two years, but prices, especially
food prices, have gone on increasing unchecked as demand has
continued to outpace supply.
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1.www.google.com
2.www.allbankingsolutions.com
3.www.rbi.org.in
4.www.businesseconomics.in
5.www.financialexpress.com
6. www.wikipedia.com
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