Qualitative Instruments
1. Rationing of credit
2. Marginrequirement
3. Variable interest rate
4.Regulation of consumer credit
5. Licensing
Rationing of credit:
Credit rationing is a method of controlling and regulating the purpose for which credit is granted by commercial bank.
It aims to limit the total amount of loans and advances granted by commercial banks. Margin Requirements:
Margin is the difference b/w the market value of a security and its maximum loan value.
Marginal requirement of loan can be increased or decreased to control the flow of chart.
Publicity:
RBI uses media for the publicity of its views on the current market condition and its directions that will be required to be implemented by the commercial banks to control the unrest.
Regulation of Consumer Credit: If there is excess demand for certain consumer durable leading to their high prices, central bank can reduce consumer credit by increasing down payment, and reducing the number of instalments of repayment of such credit.
Moral Suasion:
Moral Suasion means persuasion and request. To arrest inflationary situation central bank persuades and request the commercial banks to refrain from giving loans for speculative and non-essential purposes.
Direct Action:
Under the banking Regulation Act, the Central Bank has the authority to take strict action against any of the commercial bank that refuses to obey the directions given by Reserve Bank of India.
SIGNIFICANCE OF MONETARY POLICY
Control Inflation or Deflation
Availability of the Supply of money and Credit
Integrated Interest Rate Structure
Effective Central Banking
Long-Term Loans for Industrial Development
Creation of Financial Institutions
Control Inflation or Deflation:
Monetary policy is the policy used by the government of a country to control inflation or deflation in an economy, and this policies been implemented by the central bank through the ministry of finance.
Availability of the Supply of money and Credit:
Monetary policy is concerned with the charges in the supply of the money and credit. It refers to the policy measures under taken by the government or central bank to influence the availability, cost and use of money and credit with the help of monetary techniques to achieve specific objectives.
Integrated Interest Rate Structure:
In an underdeveloped economy, there is absence of an integrated interest rate structure. There is wide disparity of interest rates prevailing in the different sectors of the economy and these rates do not respond to the changes in the bank rate, thus making the monetary policy ineffective.
Effective Central Banking:
To meet the developmental needs the central bank of an underdeveloped country must function effectively to control and regulate the volume of credit through various monetary instruments, like bank rate, open market operations, cash-reserve ratio etc.
Long-Term Loans for Industrial Development:
Monetary policy can promote industrial development in the underdevelopment countries by promoting facilities of medium-term and long-term loan to the manufacturing units.
Creation of Financial Institutions:
The Monetary policy in a developing economy must aim to improve its currency and credit system. More banks and financial institutions should be set up, particularly in both areas which lack these facilities.
RECENT TRENDS IN MONETARY POLICY
(2023)
Policy Rates
Policy Repo Rate: 6.25%
Standing Deposit Facility Rate: 6.00%
Marginal Standing Facility Rate: 6.50%
Bank Rate: 6.50%
Fixed Reverse Repo Rate: 3.35%
Reserve Ratio
CRR 4.50%
SLR 18.00%
Exchange Rates
INR / 1 USD : 81.3719
INR / 100 JPY : 63.7600
(As on January 16,2023)
Lending / Deposit Rates
Base Rate-8.60% - 9.40%
MCLR(overnight) -7.30% - 8.40%
Savings Deposit Rate -2.70% - 3.00%
Term Deposit Rate > 1 Year-6.00% -7.25%
Government Securities Market
7.26% GS 2032 @7.3003%
4.56% GS 2023 @ 6.7964%
91 day T-bills is @6.3890%
182 day T-bills is @-6.7784%
364 day T-bills is@ -6.8950%