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Money and banking part 10
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Recent changes in the monetory policy of India

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  2. RECENT CHANGES IN MONETARY POLICY The monetary policy has undergone many changes since 1991: 1. Upto 1991, RBI had adopted 'monetary targeting approach' where monetary policy was focused on price stability by controlling money supply. Post 1991, it started to take many different factors into account for the same.

  3. 2. Quantitative methods began to be more used as compared to qualitative methods. 3. Earlier, the lending rate was decided by the RBI. Post 1991, this decision was made by the commercial banks KS. 4. To promote the financial secrot, the CRR and SLR have been lowered over the years.

  4. 5. RBI had faced out adhoc treasury bills in 1994 6. In 2000, RBI introduced Liqiduity adjustment facility. It allowed bank to borrow money through repurchase agreement. These funds helped the banks to meet the difference in day to day liquidity 7.RBI introduced micro finance schemes, by linking Self Help Group to banking system. 8. Withdrawal of 500 and 1000 rupee notes in 2018.

  5. 8. With globalization, a lot of foreign capital entered the domestic financial market. The excess liquidity was wiped out by the use of LAF. 9. The monetary transmission was done through interest rate,asset price, credit availability and exchange rate channel. 10. Now, another measure - Expectations, is also added to this list.

  6. 11. The RBI has introduced the Marginal cost of funds based lending rate as an alternative to earlier base rate in 2016. 12. Earlier, the formula used was: Base rate Cost of funds + margin + operating expense+CRR. Now, the MCLR was calculated as: MCLR = Marginal cost of funds + tenor premium + CRR + operating expense

  7. RBI RATES 1. 2. 3. 4, 5. 6. 7. Bank rate-6.75% CRR-400 SLR-20.75% Repo rate-6.25% Reverse repo rate-5.75% Marginal standing facility-6.75% Base Rate-9.75%

  8. MONETARY POLICY COMMITTEE A monetary policy committee is set up by the RBI to decide the following: 1. Fix the rate of interest 2. Set inflation target It will have 6 members. 3 from the RBI and 3 nominated from the government. They will be appointment for 4 years and are not eligible for re appointment.

  9. MEMBERS FROM RBI: Governor- Urjit Patel Deputy Governor - Rama S. Gandhi Executive Director - Michael Patra NOMINATED BY THE GOVERNMENT Chetan Ghate Pami Dua Ravindra Dholakia