THE RESERVE BANK OF INDIA AND EFFECT OF ITS MONETARY POLICY ON RECESSION

ROLE OF RBI

Main monetary authority Bank for state and national governments Formulates and implements the monetary policy Exchange control Price stability Issues currency

MONETARY POLICY

Influence economic activity Bank rate: Rate at which RBI lends to other banks Cash Reserve Ratio: Part of cash reserves banks have to keep with the RBI Statutory Liquidity Ratio: Part of liquid assets that banks are required to maintain Repo Rate: Rate at which banks borrow from RBI Reverse Repo Rate: Rate at which banks park their excess liquidity with RBI

IMPACT OF GLOBAL FINANCIAL CRISIS ON INDIA

Stock market crash Depreciation of Indian Rupee Liquidity crunch in the Banking sector Impact on Indian Economic Growth Slowdown in the Manufacturing Sector Balance of Payments

FIRST MOVE BY RBI

First Stimulus Package announced by RBI in Oct-08

Reduction in the repo rate by 100 basis points from 9.0 to 8.0 per cent and by 50 basis points to 7.5 per cent with effect from November 3, 2008.
Cash reserve ratio (CRR) reduced by 100 basis points from 6.5 per cent to 5.5 per cent The statutory liquidity ratio (SLR) reduced by one percentage points, that is, from 25 per cent to 24 per cent. The Reserve Bank continued to sell foreign exchange (US dollar) through agent banks to augment supply in the domestic foreign exchange market or intervene directly to meet any demand-supply gaps

Provided an advance of Rs.25,000 crore to financial institutions under the Agricultural Debt Waiver and Debt Relief Scheme Buy back dated securities

Provided refinance facility to the tune of Rs 7000 crores to MSEs

SECOND MOVE
Brought down the repo rate from 6.5 % to 5.5% Brought down reverse repo rate from 5% to 4% Slashed the cash reserve ratio or CRR by 0.5% to 5% Released additional liquidity of Rs 20,000 crores into the financial system Bank rate remains to be 6% Liberalizing the policy on External Commercial Borrowing (ECB)

CURRENT SCENARIO
Indian economy is overflowing with liquidity One policy rate to denote rate changes in banking system Increased in the Repo Rate from 7.25% to 7.50%. Increased in the Reverse Repo Rate from 6.25% to 6.50%. SLR decreased from 25% to 24%.

THANK YOU