impact of monetary policy on indian economy in the post-reform period

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4.6. MONETARY POLICY 1996-97 154 4.7. MONETARY POLICY 1997-98 155 4.8. MONETARY POLICY 1998-99 157 4.9. MONETARY POLICY 1999-2000 160 4.10. MONETARY POLICY 2000-01 162 4.11. MONETARY POLICY 2001-02 166 4.12. MONETARY POLICY 2002-03 169 4.13. MONETARY POLICY 2003-04 171 4.14. MONETARY POLICY 2004-05 173 4.15. MONETARY POLICY 2005-06 176 4.16. MONETARY POLICY 2006-07 180 4.17. MONETARY POLICY 2007-08 183 4.18. MONETARY POLICY 2008-09 186 4.19. MONETARY POLICY 2009-10 190 REFERENCES 195 V. MONEY MARKET INSTRUMENTS AND INTEREST RATES 197 5.1. LENDING RATE 199 5.2. DEPOSIT RATE 206 5.3. LIQUIDITY ADJUSTMENT FACILITY (LAF) 218 5.4. CALL MONEY MARKET 226 5.5. CERTIFICATE OF DEPOSITS (CDS) 234 5.6. COMMERCIAL PAPER (CPs) 237 5.7. MONEY MARKET MUTUAL FUNDS (MMMFs) 242 5.8. CHANGES IN THE REFINANCE FACILITY 244 5.9. EXPORT CREDIT 251 5.10. OTHER MONEY MARKET DEVELOPMENTS 257 REFERENCES 266
VI. MONETARY POLICY IN INDIA 268 6.1. INSTRUMENTS OF MONETARY POLICY IN INDIA 268 6.1.1. Bank Rate 268 6.1.2. Cash Reserve Ratio (CRR) 275 6.1.3. Statutory Liquidity Ratio (SLR) 291 6.1.4. Open Market Operations 297 6.1.5. Repo Rate 311 6.1.6. Reverse Repo Rate 324 6.1.7. Selective Credit Control Methods 330 6.2. MONEY, PRICES AND OUTPUT IN INDIA 337 6.2.1. Reserve Money 338 6.2.2. Money Multiplier 343 6.2.3. Money Supply in India 346 6.2.4. The Price Level and Real Output 363 6.2.5. Inflation and Economic Growth 371 6.2.6. Monetary Policy and Price Stability 377 6.2.7. Monetary Policy and Economic Growth 383 REFERENCES 400 VII. SUMMARY, FINDINGS, CONCLUSION AND RECOMMENDATIONS 402 BIBLIOGRAPHY 416
Page 1 and 2: IMPACT OF MONETARY POLICY ON INDIAN
Page 3 and 4: DECLARATION I declare that the thes
Page 5 and 6: Palayam, Centre for Development Stu
Page 7: 2.2.2. Contemporary Monetary Theory
Page 11 and 12: Table No Title VI.18. Gross Domesti
Page 13 and 14: CHAPTER - I INTRODUCTION
Page 15 and 16: Money markets facilitate the conduc
Page 17 and 18: 2. To examine the effectiveness <st
Page 19 and 20: The last chapter provides the summa
Page 21 and 22: For sustaining the high growth path
Page 23 and 24: an instrument to generate additiona
Page 25 and 26: commercial sector. Otherwise, infla
Page 27 and 28: Ranjanendra Narayan Nag and Mallina
Page 29 and 30: the allowed objective of</s
Page 31 and 32: the foreign exchange market is at b
Page 33 and 34: Banking and stock market systems ar
Page 35 and 36: conduct of <strong
Page 37 and 38: Monetary policy is
Page 39 and 40: is a systematic response in the Res
Page 41 and 42: anking system. Monetary pol
Page 43 and 44: References 1. Reserve Bank
Page 45 and 46: 28. Manohar Rao, 2000. ‗Fiscal De
Page 47 and 48: 53. Shankar Acharya, 2002. ‗Macro
Page 49 and 50: CHAPTER -II MONETARY THEORY AND POL
Page 51 and 52: money. (4) Johnson (1969) distingui
Page 53 and 54: and liabilities increase by the sam
Page 55 and 56: money helps in equalizing the margi
Page 57 and 58: 5. As a means to capital formation
Page 59 and 60:
3. Interest rate ceiling was freed
Page 61 and 62:
To conclude, the role of</s
Page 63 and 64:
2.1.7. Money Market in India The mo
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The 182-day Treasury bill was repla
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phased in such a manner that existi
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market, including issues comprising
Page 71 and 72:
2.1.9. The Financial Sector Reforms
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also the characteristic of<
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established demand-and supply analy
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The value of money
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level will be strictly proportional
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deposits (D) of a
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The money supply (M) consists <stro
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employment, rate of</strong
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A. Total Wealth The total wealth is
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Income Friedman‘s quantity theory
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―An irregular simple empirical re
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Finally, even if there is the ‗li
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this model as world occur in a syst
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initial endowments of</stro
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economists believe that like transa
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Thus, the total demand for money ca
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Income; where with the increase in
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interest rate falls. People will, t
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employment is liable to fluctuate.
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atios among financial assets in the
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But, defined in a narrow sense, <st
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(2) Economic growth (3) Full employ
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monetary p
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Full Employment and Economic Growth
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price stability along with distribu
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This new set of fa
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Market yield on Equity Tobin sugges
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interest rate will rise again and s
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thriftiness, could not, it was argu
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Keynes emphasized that the liabilit
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close and regular relationship betw
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8. Friedman, M. 1970. The Counter R
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40. Friedman, Milton. 1956. The qua
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CHAPTER-III SIGNIFICANCE OF MONETAR
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3.1. ROLE OF MONETARY POLICY IN DEV
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most of investment
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many financial assets each differin
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composite or integrated system. Thi
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Despite the general support and ind
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is not just second best; it may eve
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3.3. SOME MONETARY CONSTRAINTS Ther
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countries. There is little reason t
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to monetary <stron
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ultimate goal variables on the othe
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CHAPTER- IV REVIEW OF MONETARY POLI
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currency reserves to $6.4 billion a
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public action. The balance
Page 165 and 166:
4.4. MONETARY POLICY 1994-95 The ye
Page 167 and 168:
of growth
Page 169 and 170:
control money growth. The cash rese
Page 171 and 172:
With regard to industrial productio
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atio of 1.7 per ce
Page 175 and 176:
was restored with the sentiment imp
Page 177 and 178:
eserves by over US $ 2.4 billion du
Page 179 and 180:
government administrative departmen
Page 181 and 182:
1999-2000 and an increase o
Page 183 and 184:
has been significant deceleration i
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and SDR) reached a record level <st
Page 187 and 188:
contribution of in
Page 189 and 190:
cent in June, 2003. Lending rates h
Page 191 and 192:
money as of that d
Page 193 and 194:
from late 2003, posed considerable
Page 195 and 196:
under pressure to reach 7.71 per ce
Page 197 and 198:
Inflation, with its roots in supply
Page 199 and 200:
The increasing trend in gross domes
Page 201 and 202:
The average growth of</stro
Page 203 and 204:
and 9.7 per cent in 2007-08 and 200
Page 205 and 206:
facilitating monetary</stro
Page 207 and 208:
world, for the better part
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went up from around 8 per cent to 1
Page 211 and 212:
This is only a brief report <strong
Page 213 and 214:
CHAPTER - V MONEY MARKET INSTRUMENT
Page 215 and 216:
During 1961-85, the interest rates
Page 217 and 218:
Table: V.1 Lending Rate during the
Page 219 and 220:
ii) In the context of</stro
Page 221 and 222:
iv) The Reserve Bank advised that t
Page 223 and 224:
2004-05 2005-06 There was no releva
Page 225 and 226:
1992-93 i) Deposit interest rates w
Page 227 and 228:
domestic term deposit with a maturi
Page 229 and 230:
(B) deposits. This would apply in r
Page 231 and 232:
paying the depositors at the contra
Page 233 and 234:
ii) Entities other than authorized
Page 235 and 236:
iii) The interest rate ceiling on F
Page 237 and 238:
Facility) served as a transitional
Page 239 and 240:
were provided CLF and ACLF for the
Page 241 and 242:
2. In the case of
Page 243 and 244:
5.4. CALL MONEY MARKET The call mon
Page 245 and 246:
1998-99 i) To develop an efficient
Page 247 and 248:
Bank, an increased access over the
Page 249 and 250:
ii) With effect from the fortnight
Page 251 and 252:
5.5. CERTIFICATE OF DEPOSITS (CDS)
Page 253 and 254:
ii) With a view to provide flexibil
Page 255 and 256:
tend to raise amidst ample liquidit
Page 257 and 258:
iii) In November 1996, the extent <
Page 259 and 260:
as reflected in the close co-moveme
Page 261 and 262:
iii) Effective from November 2, 199
Page 263 and 264:
over the monthly average level <str
Page 265 and 266:
1996-97 PSCFC scheme was terminated
Page 267 and 268:
1999-2000 i) The general refinance
Page 269 and 270:
1992-93 Some of th
Page 271 and 272:
ii) As a measure to boost exports,
Page 273 and 274:
2003-2004 i) The interest rate ceil
Page 275 and 276:
1993-94 i) To provide flexibility t
Page 277 and 278:
2000-01 i) In order to impart great
Page 279 and 280:
viii) A fully functional RTGS syste
Page 281 and 282:
led to improvement in liquidity man
Page 283 and 284:
market and more or less stable inte
Page 285 and 286:
CHAPTER -VI MONETARY POLICY IN INDI
Page 287 and 288:
last resort‘, the central bank he
Page 289 and 290:
November 1951 and increases in the
Page 291 and 292:
the Bank Rate by 1 percentage point
Page 293 and 294:
well as prime Lending Rate. Thus, a
Page 295 and 296:
However, the method of</str
Page 297 and 298:
the 14 th day of t
Page 299 and 300:
1998 - 99 The CRR to be maintained,
Page 301 and 302:
With a view to provide further flex
Page 303 and 304:
2004-05 i) Cash reserve ratio (CRR)
Page 305 and 306:
v) The CRR was proposed (October 6,
Page 307 and 308:
Table VI.2(Contd.) Year Effective s
Page 309 and 310:
percentage of thei
Page 311 and 312:
September 1990. In view of<
Page 313 and 314:
2004-07 2007-08 correspondent banks
Page 315 and 316:
The Section 24 of
Page 317 and 318:
3) To stabilize the securities mark
Page 319 and 320:
Table: VI.4 Reforms in the Governme
Page 321 and 322:
Table: VI.4. (Contd.) Reforms in th
Page 323 and 324:
• Negotiated Dealing System (NDS)
Page 325 and 326:
debt manager the RBI is merely sell
Page 327 and 328:
anks and PDs, these policy<
Page 329 and 330:
automatically invested and can rema
Page 331 and 332:
1992-93 During the year, an active
Page 333 and 334:
1999-2000 i) The Reserve Bank annou
Page 335 and 336:
ii) It was decided that the facilit
Page 337 and 338:
ii) The repo rate under the LAF was
Page 339 and 340:
Year Effective since Table VI.5 Mov
Page 341 and 342:
During the year 1992-93, an active
Page 343 and 344:
Reserve Bank announced liquidity su
Page 345 and 346:
2007-08 i) Withdrawal of</s
Page 347 and 348:
Year Effective Date Table VI.6 (Con
Page 349 and 350:
money against securities. Banks do
Page 351 and 352:
According to Chandler, ―in many c
Page 353 and 354:
(3) Though the banks ensure that lo
Page 355 and 356:
term interest rate as their <strong
Page 357 and 358:
the Central Government. The supply
Page 359 and 360:
Chart VI.3. Annual Percentage Varia
Page 361 and 362:
Annual Variation (%) Chart VI.4. An
Page 363 and 364:
Table: VI.9 Money Multiplier during
Page 365 and 366:
Over a period of t
Page 367 and 368:
1977, the RBI has adopted four alte
Page 369 and 370:
(4) M3 Time deposits or fixed depos
Page 371 and 372:
Year Table VI.10 Net Bank Credit to
Page 373 and 374:
Table: VI.11 Total Bank Credit to C
Page 375 and 376:
Table: VI.12 Net Foreign Exchange A
Page 377 and 378:
liabilities to the public had only
Page 379 and 380:
Reserve money and Narrow Money exhi
Page 381 and 382:
supply in India, in almost all the
Page 383 and 384:
Output can be measured both in nomi
Page 385 and 386:
een facing a loss of</stron
Page 387 and 388:
decade of reform,
Page 389 and 390:
India has still a balance between o
Page 391 and 392:
Let us suppose that velocity is con
Page 393 and 394:
Table VI.21 provides the annual rat
Page 395 and 396:
India‘s inflation can also be mea
Page 397 and 398:
taking both the absolute value and
Page 399 and 400:
of other factors s
Page 401 and 402:
6.2.7. MONETARY POLICY AND ECONOMIC
Page 403 and 404:
Table: VI.27 Credit- Deposit Ratio
Page 405 and 406:
with other advanced and emerging ma
Page 407 and 408:
during 1996, 1998 and 2000-02 were
Page 409 and 410:
Table: VI.31 Net Domestic Capital F
Page 411 and 412:
was at the highest in 1991-92, with
Page 413 and 414:
December 2002, employment growth in
Page 415 and 416:
arising from the slowdown in growth
Page 417 and 418:
to the system by the end of
Page 419 and 420:
17. Reserve Bank of</strong
Page 421 and 422:
CHAPTER-VII SUMMARY, FINDINGS, CONC
Page 423 and 424:
6. It is objective and in discrimin
Page 425 and 426:
Most central banks have, therefore,
Page 427 and 428:
Monetarists believe that the econom
Page 429 and 430:
targets is not enough. Such achieve
Page 431 and 432:
3. In India, the opening up <strong
Page 433 and 434:
18. Given the random nature <strong
Page 435 and 436:
BIBLIOGRAPHY
Page 437 and 438:
Chowdhry, Vikram. 2002. Monetary Po
Page 439 and 440:
Keynes, J.M. 1923. A Tract on Monet
Page 441 and 442:
Van Caspel, Venita. 1988. Money Dyn
Page 443 and 444:
EPW Research Foundation, 2000. ‗S
Page 445 and 446:
Kannan, R., Indranil Sen Gupta and
Page 447 and 448:
Prasanth, V.P. and Shetty, S.A. 200
Page 449 and 450:
Smets, F. 1995. ‗Central Bank Mac
Page 451 and 452:
Kannan, R. ‗The Dimensions <stron
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