TABLE OF CONTENT

S.NO. PARTICULARS PAGE

NO.

1. Introduction 12-16

2. Review Of Literature 17-18

3. Research Methodology 19

4. Monetary Policies 20-27

5. Inflation 28-30

6. Data Analysis 31-32

34-35
7. Findings
36
8. Bibliography

INTRODUCTION

1
Various studies have mirrored the existence of a positive relationship between the rise of cash
provide and also the level of inflation. Generally, this is often mirrored by the continued rise
of costs of the assorted product. A state of affairs ensues wherever excess amounts of cash
tend to be chasing too few merchandise. During this perspective, this study tested on whether
or not financial policy is a good tool within the combating of inflation. Thus, the management
of financial policy has clad to be a necessary operate of all governments within the world.
The price of production will then be checked therefore on combat issues associated with
inflation.

To this finish, varied researchers have established the flexibility of financial policy
as a tool for dominant inflation. Everywhere the planet, in various economies, financial
policy has been seen as an approach to effectively management inflation. This is often
mirrored by the flexibility of financial policy in dominant the increase in demand by a rise
within the on the market rates of interest. Additionally, financial policy reduces the present
real cash within the economy. An increase within the interest manages to bring an overall
reduction in collective demand in an economy. So as a general, it is the methodology by that
monetary authority of country , notably financial institution managements the supply of
money among the economy by its management over interest rates therefore on continue
worth stability and produce home the bacon high process . Therefore on regulate offer of
money it uses type of quantitative and qualitative tools like discount rate, CRR , SLR , repo
and reverse repo rate , open market operations, margin needs , ethical communication, credit
allocation etc. Statistically, funds incorporates a applied math significance on the extent of
inflation within the country. Thus, financial policies aimed toward dominant the quantity of
cash provide within the economy, have an amazing impact on dominant the extent of
inflation. Problems connected with financial policy are- objectives or goals of the policy,
instruments of financial management, its potency, implementation, intermediate target of the
policy etc.

India's financial policy since the primary set up amount was one amongst the
controlled enlargement. Thus, run batted in helped the economy to expand via enlargement of
cash and credit and tried to examine rise costs through financial and different management
measures. So within the post reform amount, the economy is coping with a collection of
recent programmes and policies for its own re-construction. Financial policy is outlined as a
public interventionist action that aims at manipulating the extent and array of economic
activity therefore on accomplish specific, desired goals. Additionally, financial policy could

2
be a major tool exploited in a battle of conserving a currency in an economy. It always
involves the management of existing liquidity in circulation in an economy to levels
perceived as per the required growth and worth objectives established by a government.
During this situation, financial policy is employed to manage inflation caused by excess
provide of cash and excess credit enlargement, thus it takes the shape of contractionary policy
with an aim of dominant prevailing excess provide and credit enlargement.

The official goals sometimes embody comparatively stable costs and low state. It's
remarked as either expansionary or contractionary , wherever an expansionary policy will
increase the entire provide of cash within the economy sooner than usual and also the
contractionary policy expands the cash provide additional slowly than usual or maybe shrinks
it.

OBJECTIVES-

The research objectives are stated as follows-

a) To study the changing role and importance of selected monetary instruments in India

b) To examine the effectiveness of monetary policy in ensuring price stability in India.

c) To find out to what extent monetary policy facilitated economic growth in India.

Now, the goals of monetary policy, in India, are not set out in specific terms and there is
greater freedom in the use of instruments. Greater transparency in the setting of objectives of
monetary policy and instrument freedom are expected to bring about greater rigor in the
formulation of strategies and the choice of instruments. In India, Money supply has been
regarded as an appropriate intermediate target between the variables and objectives.
Monetary policy is known to have both short and long term effects. While it generally affects
the real sector with long and variable lags, monetary policy actions on financial markets, on
the other hand, usually have important short-run implications. It is necessary to recognize the
existence of a large informal sector, the limited reach of financial markets relative to the
growing sectors, especially services. This tends to constrain the effectiveness of monetary
policy in India.

It is well recognized that monetary policy is conducted within a particular

framework. The relationship among different segments of the market and sectors of the
economy is also involved in this framework. As part of the ongoing process of reforms, it is

3
necessary to improve standards, codes and practices in matters relating to financial system
and bring them on par with international ones. These are some items of significance for
further research in the realm of monetary policy in India. Many of the policies that we use
nowadays routinely and without thought are the outcome of the research and contemplation
of economists of earlier years. Since these endogenous features of the economy can vary
from one country to another, this calls for independent research in each nation. Over the last
few years there is a sense that the inflation faced by emerging economies is changing some of
its stripes, thereby demanding not just greater resolve but new ideas in order to have price
stability.

While most monetary authorities do not completely disregard growth targets,2 keeping
inflation at some broad target range is viewed as the dominant objective. While the inflation
versus growth tradeoff does not generally arise when inflation is driven by a positive demand
shock, it does clearly figure in the event of a negative supply shock. To some extent many
inflation targeting monetary authorities implicitly or explicitly overcome this tradeoff by
either choosing to focus only on core inflation, or by specifying certain events under which
headline inflation is allowed to overshoot the target. Another way of trying to overcome this
tradeoff is by focusing on a medium-term target as opposed to a short-term one.3 While all
these strategies allow the monetary authority to accommodate cost-push inflation caused by
volatile energy or food prices, a sustained run-up in these factor prices will eventually seep
into domestic non-core inflation and will necessitate some action by the monetary authorities.

The present study was an attempt to analyze systematically the techniques of monetary
control measures with its relevance and changing importance and to find out their
effectiveness in the Indian context especially to achieve the thriving objectives of price
stability. There is definite and remarkable economic impact of monetary policy on Indian
economy in the post-reform period. The importance of monetary policy has been increasing
year after year. Its role is very relevant in attaining monetary objectives, especially in
managing price stability. The use and importance of monetary weapons like Bank rate, CRR,
SLR, Repo rate and Reverse Rate have increased over the years. Repo and Reverse Repo
rates are the most frequently used monetary techniques in recent years. The rates are varied
mainly for curtailing inflation and absorb the excess liquidity and hence to maintain price
stability in the economy. Thus, this short-time objective of price stability is more successful
on Indian economy rather than other long-term objectives of development. Its capacity for
effective monetary management or any inflation control needs to be further strengthened

4
through rapid deepening and broadening of primary and secondary markets for Government
securities. Price stability remains the key objective of monetary policy and there is virtually a
national consensus that high inflation is not good. Inflation expectations and inflation
tolerance have come down. It even affects the spending decisions and saving pattern of the
people. The increase in interest has been accompanied by a rapid growth both in the
number of articles written on monetary economics and in the number of professional
journals devoted in whole or in part to monetary economics, policy and institutions.
The monetary developments have not been without controversy, and this work
attempts to capture both the highlights and the spirit of the period.

Interest in monetary economics and policy has intensified greatly in recent years
for a number of reasons, including an increasing dissatisfaction with the performance of
fiscal policy for economic stabilization and the generation of a substantial stream of
evidence relating money importantly and in a predictable fashion to income, output and
prices .

As a matter of fact, global thinking on monetary policy, and by implication, that

on central banking, has evolved over time in accordance with the changing perceptions
regarding the role of money in economic activity.
Recent advances in monetary economics have differed somewhat from past
developments in that they have been primarily empirical. Alternative hypotheses of
monetary behavior have been subjected to vigorous empirical analysis using scientific
methods of testing hypothesis and new statistical techniques. Prof. Milton Friedman has
noted that the basis differences among economists are empirical, not theoretical.
By monetary policy, we mean primarily central bank actions designed to affect
the tightness and easiness of credit conditions, and the behavior of the total supply of
money and money substitutes (i.e. the supply of currency, checkable bank deposits,
various categories of time deposits, and other liquid instruments.)

Some of the PROBLEMS faced during the case study are-

Resources available for carrying out the research were limited. Therefore, the available
resources were utilized in the best possible way.
It is important to recognize that all the objectives cannot be effectively pursued by any single
arm of economic policy. Hence there is always the problem of assigning to each instrument
the most appropriate target or objective. In today's altered economic context , a low and
5
stable price environment is being increasingly regarded as an essential condition for bringing
down the nominal interest rate and for improving the growth and productive potential of the
economy.
It is necessary to recognize the existence of a large informal sector , the limited reach of
financial markets relative to the growing sectors , especially services. This tends to constrain
the effectiveness of monetary policy in India.

REVIEW OF LITERATURE
The contributions made by various scholars and experts in the field of monetary policy are
really praiseworthy. Gupta and Srinivasan (1984) attempt to assess the impact of changes in

6
administered prices on sect oral and overall price movements using a simple inter-sect oral
model. Monetary policy has now moved to the centre stage of economic policy making.
Many writers feel that inflation is endemic in the process of economic growth and inflation is
treated more as a consequence of structural imbalance than as a monetary phenomenon. The
issue of objective has become important because of the need to provide clear guidance to
monetary policy makers.

Paulson (1989), examines the impact of monetary policy on Indian economy in the pre-
reform period. The study reveals that the single important factor that influences the money
supply in the economy is the reserve money. He points out a positive correlation between
inflationary pressures and administered prices, and what is required, he suggests, to achieve
price stability, is a cordial and symbiotic relationship between monetary policy and fiscal
policy.
Inflation is a monetary phenomenon (which is) fuelled by the excessive creation of
money. In an article =Inflation, Monetary Policy, and Financial Sector Reform, published in
Southern Economist, Tarapore , mentions inflation as a tax on the weaker sections of society.
The need for a monetary relaxation is often argued as being helpful to the weakest sections
of society. Nothing could be farther from the truth. The curtailment of inflation is the best
anti-poverty programme and therefore a strong anti-inflationary monetary policy is in
consonance with societal concerns. He also predicts that the imminent developments in the
securities market in the foreseeable future call for development of entirely new skills in the
Reserve Bank, the commercial banks and financial institutions.
Unusual conditions leading up to the business cycle of 1989-93, made it difficult to
recognize inflationary pressures. Several industrial countries pursued expansionary policies
that caused their economies to overheat; policy corrections then led to asset-price deflation
and severe recessions. Valuable lessons can be drawn from this experience (Garry
Schinasi,).The most important question is whether future business cycles, in a liberalized
global financial environment, are likely to have a similar profile. Uncertainty about this issue
reinforces the need for monetary policy to remain flexible in the future and for the
development of more reliable tools for monitoring cyclical developments including tools
making it possible to assess asset market conditions with greater accuracy.
Monetary policy has now moved to the center stage of economic policy making,
commends Rangarajan, (1996) while delivering a lecture on some Issues on Monetary
Policy, conducted by the ASCI. In fact, many writers feel that inflation is endemic in the

7
process of economic growth and inflation is treated more as a consequence of structural
imbalance than as a monetary phenomenon, he remarked.
The issue of objective has become important because of the need to provide clear guidance to
monetary policy makers.

RESEARCH METHODOLOGY
This study is exclusively based on secondary data. Secondary data was collected from various
books, newspapers, websites and different reports.

8
 To examine the first objective , i.e. the changing role and importance of
monetary weapons in India. The major monetary instruments used for combating inflation
were discussed and taken into account and changes in the relative importance of each
monetary technique was marked .

To study the major factors that determine the effectiveness of monetary policy in
ensuring price stability.

To find the general impact of monetary policy on the Indian economy and
especially to find out the role of monetary policy in facilitating economic growth and in
controlling inflation in India. We examined the different monetary intermediate targets and its
impact on the real economic variables in India.

This is basically the descriptive research . Descriptive research is a study designed to depict
the participants in an accurate way. More simply put, descriptive research is all about
describing people who take part in the study.

There are three ways a researcher can go about doing a descriptive research project, and they
are:

Observational, defined as a method of viewing and recording the participants

Case study, defined as an in-depth study of an individual or group of individuals

Survey, defined as a brief interview or discussion with an individual about a specific

topic.

This is in fact economical problem. This management problem has to be translated

into research problem. Then the process involves collecting, analyzing and reporting
the information specified in the research problem. Identifying and researching one
problem may lead to the recognition of other problem and to additional research to
help in solving them.

MONETARY POLICIES
What are Monetary policies?
9
Monetary policies is that strategy by that financial authority of a country, typically a
financial management regulates the supply of money at intervals by its management over
interest rates therefore on maintaining value stability and attain high process. Further it also
deals with the distribution of credit between uses and users and also with both the lending and
borrowing rates of interest of the banks. In developed countries the monetary policy has been
usefully used for the overcoming depression and inflation as an anti-cyclical policy. But in
developing countries it has to play a significant role in promoting economic growth. In the
U.S. , the Federal Reserve is in charge of monetary policy. So as a general, it is the process
by which monetary authority of country , particularly central bank controls the supply of
money in the economy by its control over interest rates in order to maintain price stability and
achieve high economic growth . In order to control supply of money it uses variety of
quantitative and qualitative tools like bank rate, CRR , SLR , repo and reverse repo rate ,
open market operations, margin requirements , moral suasion , credit rationing etc.

Objectives of monetary policies

The objectives of monetary policies are as follows-

a) Helps in maintaining stability-

It is one in every of the foremost vital objective that is employed effectively by our economy.
It implies promoting economic development with specializing in worth stability. It suggests
that cheap rate of inflation. Once there's associate degree equilibrium maintained in our
economy then there'll be sleek flow of cash provide within the economy.

b) Encouraging economic growth-

10
Promoting economic process is another vital objective of the financial policy. It will promote
economic process through making certain adequate availableness of credit and lower value of
credit. Lesser the value of credit additional is going to be the investments created and bloom
within the cash in hand within the economy.

c) Promotion of exports and food acquisition operations-

Monetary policy pays special attention so as to spice up exports and facilitate the trade.

d) Maintaining stability of rate of exchange of the rupee-

The policies of floating rate of exchange and increasing economic process of the Indian
economy since 1991 have created the rate of exchange of rupee quite volatile. The changes
within the capital inflows and outflows and changes in exports causes nice fluctuations
within the exchange rate of rupee.RBI must take appropriate measures to confirm exchange
rate stability.

e) Equitable distribution of credit-

The policy of tally aims equitable distribution to all or any sectors of the economy and every
one social and economic category of individuals.

Role of monetary policies in economic growth-

Monetary policies help in increasing national income output of the economy. Its role in
economic growth are stated below:

a) Increase in the aggregate rate of savings of the economy.

b) Mobilisation of these savings so they are made available for the purpose of investment
and production.

c) Increase in the rate of investment.

d)To allocate the funds in the productive purpose and agricultural sectors in the economy.

Demerits of monetary policies

11
1. Massive Non-monetized Sector:
There is an outsized non-monetized sector that hinders the success of financial policy in such
countries. Folks largely sleep in rural areas wherever barter is practiced. Consequently,
financial policy fails to influence this massive section of the economy.

2. Undeveloped Money and Capital Markets:

The money and capital markets square measure undeveloped. These markets lack in bills,
stocks and shares that limit the success of financial policies.

3. Little Bank Money:

Monetary policy is additionally not thriving in such countries as a result of bank cash
contains, atiny low proportion of the full funds within the country. As a result, the financial
organization isn't in an exceedingly position to manage credit effectively.

4. Cash not deposited with Banks:

The well-off folks don't deposit cash with banks however use they it in shopping for jewelry,
gold, property, in speculation, in usance, etc. Such activities encourage inflationary pressures
as a result of they lie outside the management of the financial authority.

5. Existence of Black Money:

The existence of black cash within the economy limits the operating of the financial policy.
The black cash isn't recorded since the borrowers and lenders keep their transactions secret.
Consequently the provision and demand of cash conjointly not stay as desired by the financial
policy.

Merits of monetary policies

12
1. Short Term Liquidity Management :
RBI has developed varied strategies to take care of stability in rate of interest and rate like
LAF, OMO and MSS. run batted in has conjointly managed its sterilization operations all
right.

2. Monetary Stability:
With the assistance of controls, regulation and supervising mechanism, run batted in has been
prosperous in maintaining monetary stability. Throughout the amount of worldwide crisis it's
conjointly been able to maintain macroeconomic stability.

3. Monetary Inclusion :
Along with NABARD, run batted in has created a good impact within the growth of
microfinance. Run batted in has supported Self facilitate cluster Model and promoted
different microfinance establishments.

4. Increase in Growth:
To maintain the expansion of economy run batted in has used its instruments' effectively. At
the present Asian country has the second highest rate of GDP growth when China. So
financial policy has contended a very important role.

5. Increase in Bank Deposits:-

The increase in bank deposits over the years indicates trust and confidence of individuals in
banking sector. Effective supervising of run batted in over banks and monetary
establishments is basically accountable for trust and confidence of public in banking sector.

13
 Quantitative and Quantitative Credit Control
Methods
Quantitative Method of credit control:

1. Bank discount/Bank rate Policy :

Bank rate is that the rate at that the financial organization lends cash to the business banks for
his or her liquidity necessities. Bank discount is additionally known as discount rate. In
alternative words bank discount is that the rate at that the financial organization rediscounts
eligible papers (like approved securities, bills of exchange, business papers etc) control by
business banks. Bank rates are modified many times by tally to manage inflation and
recession.

2. Open market operations:

It refers to purchasing and selling of securities in open market so as to expand or contract the
number of cash within the industry. This technique is superior to bank discount policy.
Purchases inject cash into the industry whereas sale of securities do the other. This policy
aims at preventing unrestricted increase in liquidity.

3. Cash Reserve Ratio (CRR):

The CRR is an efficient instrument of credit management. It is the rate which all the banks
need to maintained as per guided by RBI. The rate keeps on changing every minute. A high
CRR reduces the money for disposition and a coffee CRR will increase the money for
disposition.

4. Statutory Liquidity Ratio (SLR):

Under SLR, the govt. has obligatory associate degree obligation on the banks to; maintain
precise quantitative relations to its total deposits with tally within the type of quick assets like
money, gold and unencumbered approved securities.

14
5. Repo and Reverse Repo Rates:
In decisive rate trends, the repo and reverse repo rates are getting necessary. Repo suggests
that Sale and Repurchase Agreement. Repo could be a swap deal involving the immediate
Sale of Securities and coinciding purchase of these securities at a future date, at a planned
worth. Repo rate helps business banks to accumulate funds from tally by commerce securities
and additionally agreeing to repurchase at a later date.

Reverse repo rate is that the rate that banks get from tally for parking their short term excess
funds with tally. Repo and reverse repo operations are employed by tally in its Liquidity
Adjustment Facility. Tally contracts credit by increasing the repo and reverse repo rates and
by decreasing them it expands credit.

Table 1 - Key Policy Rate

15
Qualitative method of credit control-

1. Margin Requirement :
A loan is sanctioned against Collateral Security. Margin implies that proportion of the worth
of security against that loan isn't given. Margin against a specific security is reduced or
enlarged so as to encourage or to discourage the flow of credit to a specific sector.

2. Discriminatory Interest Rate (DIR):

Through DIR, tally makes credit flow to bound priority or weaker sectors by charging
concessional rates of interest. Tally problems supplementary directions concerning granting
of extra credit against sensitive commodities, issue of guarantees, creating advances etc.

3. Directives:
The tally problems directives to banks concerning advances. Directives are concerning the
aim that loans could or might not be.

4. Moral Suasion:
Under Moral Suasion, RBI issues periodical letters to bank to exercise control over credit in
general or advances against particular commodities. Periodic discussions are held with
authorities of commercial banks in this respect.

5. Credit Rationing:
To make business loans expensive so as to manage funds within the economy.

16
The current indicators of 2016 are-

Indicator Current rate

Inflation 6.07%

Bank rate 7.00%

CRR 4.00%

SLR 21.00%

Repo rate 6.50%

Reverse repo rate 6.00%

Marginal Standing facility rate 7.00%

[SOURCE: RBI and Indiabulls.com]

Table 2- Key Indicators Table

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 INFLATION
What is Inflation?
Inflation may be a sustained increase within the general indicator of products and services in
an economy over an amount of your time. Once the overall indicator rises, every unit of
currency buys fewer merchandise and services. Consequently, inflation reflects a discount
within the getting power per unit of cash a loss of real worth within the medium of
exchange and unit of account inside the economy.

Inflation affects an economy in varied ways that, each positive and negative. Negative
effects of inflation embrace a rise within the cost of holding cash, uncertainty over future
inflation which can discourage investment and savings, and if inflation were speedy enough,
shortages of products as customers begin sign out of concern that costs can increase within
the future. Positive effects embrace making certain that central banks will regulate real
interest rates and inspiring investment in non-monetary capital comes.

Measures of inflation -

a) Consumer Price Index(CPI):

A CPI measures changes within the indicant of a market basket of trade goods and services
purchased by households. It's one among many worth indices calculated by most national
applied math agencies. The annual proportion amendment during a CPI is employed as a live
of inflation. A CPI is accustomed index (i.e., alter for the impact of inflation) the important
worth of wages, salaries, pensions, for control costs and for deflating financial magnitudes to
point out changes in real values.

b) Wholesale Price Index(WPI):

The WPI is that the worth of a representative basket of wholesale product. Some countries
use WPI changes as a central live of inflation. But currently India has adopted new CPI to

18
live inflation. The Wholesale indicant focuses on the worth of products listed between
companies, instead of product bought by customers, which is measured by the buyer indicant.

c) GDP Deflator:
GDP factor may be a live of the amount of costs of all new, domestically made, final product
Associate in nursing services in an economy. GDP stands for gross domestic product, the
entire worth of all final product and services made at intervals that economy throughout such
amount.

Effects of inflation -
Right from the start, inflation adds to inequalities of financial gain and wealth.
Each economy desires an eternal addition to its productive capability that it ought
to encourage capital formation. However, inflation, by its terribly nature,
discourages saving activity. It makes consumption additional engaging than
saving.
Inflation ends up in a shift within the plus preference of wealth holders. However,
in later stages of inflation, even an upward movement in rate of interest fails to
neutralize the shift in plus preference.
Inflation ends up in balance of payments issues. Once domestic costs rise quicker
than costs in foreign countries, exports tend to lag behind imports.
Inflation distorts the economic system of the country. Once inflation gathers
strength, the economic system cannot stand up to it and collapses.
Once inflation crosses its earlier phases, strain on the economic system,
speculation, expectations of additional value rise and similar alternative forces
cause a rise in state and a fall in output.

19
 Types of inflation -
a) Demand pull inflation:
In this form of inflation costs increase results from associate degree far more than demand
over provide for the economy as an entire. Demand inflation happens once provide cannot
expand any longer to fulfill demand; that's, once essential production factors area unit being
absolutely used, additionally known as Demand inflation.

b) Cost push inflation:

This type of inflation happens once general value levels rise due to rising input prices. In
general, there are 3 factors that might contribute to Cost-Push inflation: rising wages will
increase in company taxes, and foreign inflation.

c) Deflation:
Deflation is that the opposite of inflation. Deflation refers to state of affairs, wherever there's
decline normally value levels. Thus, deflation happens once the rate falls below 1/3 (or it's
negative inflation rate).

d) Stagflation:
Stagflation refers to status wherever economic process is incredibly slow or stagnant and
costs area unit rising. The facet effects of stagflation increase in unemployment- in the midst
of an increase in prices, or inflation. Stagflation happens once the economy is not growing
however prices area unit mounting.

e) Hyperinflation:
Hyperinflation could be a state of affairs wherever the worth will increase area unit too sharp.
Hyperinflation typically happens once there's an outsized increase within the finances that is

20
not supported by growth in Gross Domestic Product (GDP). Such a state of affairs results in
associate degree imbalance within the provide and demand for the cash.

Data Analysis -
How Monetary Policy Helps in Checking Inflation
and Ensuring Price Stability?
Gentle rise in prices is conducive to economic growth. However, beyond a limit,
further rise in prices inhibits growth. With the existence of a close relationship
between money supply and the price level, to control the rate of inflation the
developing countries must regulate the growth of money supply. The monetary policy
can do a great deal to check inflation by bringing about an adjustment between the
demand for and supply of money. In this regard it is essential that monetary policy of
controlled expansion of money supply be followed. From the viewpoint of
controlling sectoral inflation the selective credit control measures are perhaps better
suited. Thus, a well conceived anti-inflationary monetary policy is required in order to
prevent investment and production from being adversely affected. The Government of
India and the Reserve Bank have mostly depended on the monetary measures for
controlling inflation. Perhaps the chief cause of persistent inflationary situation had
been the huge expenditure of the government on investment and increasingly larger
amount of fiscal deficit. Monetary policy of Reserve Bank has been changing from
time to time depending on the prevailing economic situation and circumstances. In its
developmental or promotional role, RBI adopted measures to deepen and widen the
financial system to promote saving and investment in the Indian economy.

21
Future scope of monetary policies in controlling
inflation -

The Finance minister in the recent budget (2014-15) speech mentioned that soon India
will have modern monetary policy framework in order to meet the challenge of
increasingly complex economy. The formulation, framework and institutional
architecture of monetary policy in India have evolved over time around these
objectives- maintaining price stability, ensuring adequate flow of credit to sustain
growth and securing financial stability. The BOE still follows a multi model approach
to project inflation nine quarters in the future. Transparency, clear communication and
forward guidance are other pillars for the future framework of monetary policies.
Therefore models which are used for forecasting inflation should be placed in public
domain to establish credibility and inspire confidence.
In 2016, there will be 6% inflation target. In the coming years monetary
policy in India will become increasingly transparent with greater involvement of all
the stakeholders for better policy outcome.

Comparison between inflation of India and China

22
Inflation (till 2014) Graph 1

Graph 2- Inflation Over Long Run

Findings -
23
Some of the recent changes observed by RBI'S financial monetary policy are listed below-

a) Multiple Indicator Approach-

Up to late 1990's, tally used the 'Monetary targeting approach' to its financial policy.
Financial targeting refers to a financial policy strategy aimed toward maintaining value
stability by that concentrate on changes in growth of money offer. Once 1991 reforms this
approach became powerful to follow. So tally adopted multiple indicator approach throughout
that it's at a variety of economic indicators and monitor their impact on inflation and process.

b) Selective ways that being phased out-

With speedy progress in financial markets, the selective ways that of credit management are
being slowly phased out. Quantitative ways that became lot of significant.

c) Reduction in reserve desires-

In post reform quantity the CRR and SLR are additional and more lowered. This has been
done as a region of financial sector reforms. As a result, lots of bank funds are discharged for
disposition. This has junction rectifies to the growth of economy.

d) Liberating of administered rate of interest system-

Earlier disposition rate of banks resolve by tally. Since 1990's this technique has changed and
disposition rates are determined by business banks on the thought of process.

e) Delinking of financial policy from deficit-

In 1994 government phased out the use of execrate T-bills. These bills were used by
government to borrow from tally to finance commerce deficit. With phasing out of bills, tally
wouldn't lend to government to fulfil commerce deficit.

The present study was an attempt to analyze systematically the techniques of monetary
control measures with its relevance and changing importance and to find out their
effectiveness in the Indian context especially to achieve the thriving objectives of price
stability. There is definite and remarkable economic impact of monetary policy on Indian
economy in the post-reform period. The importance of monetary policy has been
increasing year after year. Its role is very relevant in attaining monetary objectives, especially
in managing price stability There is definite and remarkable economic impact of monetary
policy on Indian economy in the post period. The importance of monetary policy has been
24
increasing year after year. Its role is very relevant in attaining monetary objectives, especially
in managing price stability. The use and importance of monetary weapons like Bank rate,
CRR, SLR, Repo rate and Reverse Rate have increased over the years. Repo and
Reverse Repo rates are the most frequently used monetary techniques in recent years. The
rates are varied mainly for curtailing inflation and absorb the excess liquidity and hence to
maintain price stability in the economy. Thus, this short-time objective of price stability is
more successful on Indian economy rather than other long-term objectives of development.
The RBI is now more able and more responsible for controlling the overall growth of money
and credit in a manner best suited for moderating inflation, while meeting the genuine credit
needs of the economy. Its capacity for effective monetary management or any inflation
control needs to be further strengthened through rapid deepening and broadening of primary
and secondary markets for Government securities.
In India, the opening up of the economy in the early 1990s had a significant
impact upon the conduct of monetary policy. Price stability remains the key objective of
monetary policy and there is virtually a national consensus that high inflation is not good.
Inflation expectations and inflation tolerance have come down. It even affects the spending
decisions and saving pattern of the people.

BIBLIOGRAPHY
www.investopedia.com

25
www.kalyan-city.blogspot.com

www.businessdictionary.com

https://www.google.co.in/?
gfe_rd=cr&ei=Qm_9VLOVEYuM8Qfx94CYBA#q=dissertati
on+on+monetary+policies+in+india&spell=1

file:///C:/Users/lenovo/Desktop/report-rbi-governor-
raghuram-rajan-says-future-monetary-policy-to-be-
inflation-data-driven-2022582.htm

file:///C:/1881-types-and-causes-of-inflation.htm

Books- Macroeconomics - by H.L. AHUJA 19TH REVISED

EDITION ( published by S. CHAND)

Newspaper- The Economic Times

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