MONETARY POLICY

Monetary policy refers to the policy undertaken by the central bank to influence the availability, determine the size and rate of growth of money supply in the Economy.

  OBJECTIVES OF MONETARY POLICY

• Economic Stability And Growth
• Ensuring Inflation Targeting And Price Stability
• Full Employment
• Stable Economic Growth.

   MONETARY POLICY COMMITTEE  (MPC)

MPC of India is responsible for fixing the Benchmark Interest Rate In India. The meetings of the Monetary Policy Committee are held at least 4 times a year and it publishes its decisions after each such meeting.

The committee comprises Six Members –

1. Three officials of the Reserve Bank of India 
2. Three external members nominated by the Government of India.

The Governor of Reserve Bank of India is the Chairperson Ex- Officio of the committee. Decisions are taken by majority with the Governor having the casting vote in case of a tie. The current mandate of the committee is to maintain 4% annual inflation until 31 March 2021 with an upper tolerance of 6% and a lower tolerance of 2%.

TYPES OF MONETARY POLICY

1. EXPANSIONARY MONETARY POLICY

1. It increases the supply of money in an economy by making credit supply easily available by reducing the interest rates.
2. Money produced through such a policy is called cheap money

      iii.    It is utilized when an economy at the recession with low growth and high level of unemployment.

2. CONTRACTIONARY MONETARY POLICY

      It decreases the supply of money in Economy and used to tackle the menace of inflation in the economy by raising the interest rates.

Other Monetary policy stance:

1. NEUTRAL STANCE – interest rates may move either way- upward or downward
2. CALIBRATED TIGHTENING – interest rates can move only upward.
3. HAWKISH STANCE – Contractionary stance aimed at checking inflation form rising (linked to statutory goals of inflation targeting “Headline Inflation”)