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Fifth Monetary Policy 2023-24
Reserve Bank of India and Banking History
Establishment and Nationalization of RBI
-
The Reserve Bank of India was established on 1st April, 1935, and it was nationalized on 1st January, 1949.
Currency Issuance
-
The Finance Ministry issues Currency Notes and Coins of the rupee one; all other Currency Notes are issued by the Reserve Bank of India.
Early Indian Banks
-
The first bank of limited liability managed by Indians was Oudh Commercial Bank, founded in 1881.
-
Subsequently, Punjab National Bank was established in 1894.
Influence of the Swadeshi MovementThe
-
Swadeshi movement, which began in 1906, encouraged the formation of a number of commercial banks.
Banking Legislation
-
The Banking Companies Act was passed in February 1949, which was subsequently amended to read as the Banking Regulation Act, 1949.
Fifth Monetary Policy of FY 2023-24
Key Rates and Ratios (As on December 8, 2023)
Rate/Ratio |
Value (%) |
|---|---|
|
Repo Rate |
6.50 |
|
Standing Deposit Facility |
6.25 |
|
Marginal Standing Facility Rate |
6.75 |
|
Bank Rate |
6.75 |
|
Reverse Repo Rate |
3.35 |
|
Cash Reserve Ratio |
4.50 |
|
Statutory Liquidity Ratio |
18.0 |
How Monetary Policy Works
Definition
-
A Monetary Policy, the process by which the central bank manages the money supply in the economy, serves many objectives such as price stability and stable economic growth.
-
Monetary policy is the process by which a central bank (Reserve Bank of India or RBI) manages the money supply in the economy.
Objectives
-
The objectives of monetary policy include ensuring inflation targeting and price stability, full employment, and stable economic growth.
Tools to Control Money Supply
-
The money supply can be directly affected through reserve ratios or open market operations, and can be indirectly affected by using key interest rates to influence the cost of credit.
Types of Monetary Policy
Easy or Expansionary Monetary Policy
-
Implemented by reducing statutory bank reserves of lowering key interest rates, and improving market liquidity to encourage economic activity.
Contractionary or Tight Monetary Policy
-
Reduces liquidity and increases interest rates, which hurts both production and consumption and therefore, economic growth. [Source: ET]
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