Objectives of monetary policy of rbi
Stability of financial markets 6.
Economic growth 3. Economists call this the natural rate of unemployment.
In a developing economy like ours where structural changes take place during the process of economic growth some changes in relative prices do occur that generally put upward pressure on prices. The objectives of monetary policy include ensuring inflation targeting and price stability, full employment and stable economic growth.
Stabilising extreme movements in the value of the rupee in foreign exchange markets is thus viewed as a worthy goal of monetary policy. Related posts:. In period of depression, credit is expanded, so as to increase money supply and thus promote aggregate demand in the economy.
In addition, preventing large changes in the value of the rupee makes it easier for firms and individuals purchasing or selling goods abroad to plan ahead.
Policies of rbi
There is contraction of credit and prices are checked from rising further. In case of Indian economy, RBI is the sole monetary authority which decides the supply of money in the economy. Objective 5. Rangarajan, there is no conflict between the objectives of price stability and growth. The centre of focus is to facilitate the environment which is favourable to the architecture that enables the developmental projects to run swiftly while also maintaining reasonable price stability. Therefore, some changes in price level or, in other words, a certain rate of inflation is inevitable in a developing economy. If the RBI tries to prevent a rise in interest rates by buying bonds bidding up their prices and thus causing interest rates to fall, the resulting open market purchases will cause the monetary base, i. In addition, preventing large changes in the value of the rupee makes it easier for firms and individuals purchasing or selling goods abroad to plan ahead. It is an independent objective of monetary policy. If aggregate demand is to be increased than credit is expanded and the interest rate is lowered down. Equitable Distribution of Credit: The policy of Reserve Bank aims equitable distribution to all sectors of the economy and all social and economic class of people 8. Banks are required to keep more with the central bank.
Priority sector includes agriculture, small- scale industry, weaker sections of society, etc. The release of more dollars by Reserve Bank will increase the supply of US dollars in the foreign exchange market and will therefore tend to correct the mismatch between demand for and supply of the US dollars.
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