Monetary Policy - SSC CGL Notes
1. What is Monetary Policy?
Monetary Policy refers to the policy formulated and implemented by the Reserve Bank of India (RBI) to
control:
- Money supply
- Inflation
- Interest rates
- Availability of credit in the economy
Main Objective: Maintain price stability and ensure economic growth.
2. Who Frames Monetary Policy?
- The RBI (Reserve Bank of India)
- Since 2016, the Monetary Policy Committee (MPC) decides on key policy rates like Repo Rate.
MPC Members:
- 6 members (3 from RBI + 3 appointed by Govt. of India)
3. Types of Monetary Policy
Expansionary - Used to increase money supply during recession or slowdown.
Contractionary - Used to decrease money supply during inflation.
4. Tools of Monetary Policy
A. Quantitative Tools (Affect overall money supply)
- CRR (Cash Reserve Ratio): Portion of deposits banks must keep with RBI in cash.
- SLR (Statutory Liquidity Ratio): Deposits banks keep in liquid assets like gold/securities.
- Repo Rate: Rate at which RBI lends to banks. Lower Repo = cheaper loans.
- Reverse Repo Rate: Rate at which RBI borrows from banks.
- Bank Rate: Long-term interest rate from RBI to banks.
- OMO (Open Market Operations): RBI buys/sells govt. securities to control liquidity.
Monetary Policy - SSC CGL Notes
B. Qualitative Tools (Affect specific sectors)
- Margin Requirements: Setting margin on loans.
- Credit Rationing: Limiting credit to sectors.
- Moral Suasion: RBI persuades banks.
- Direct Action: RBI takes action against non-compliant banks.
5. Important Terms
- Liquidity: Money available in the economy.
- Inflation Targeting: RBI aims to keep inflation at 4% ± 2%.
- Accommodative Stance: RBI may lower rates to boost growth.
- Hawkish Stance: RBI may raise rates to control inflation.
6. Current Monetary Policy Goals
- Maintain inflation between 2% to 6%
- Ensure credit availability
- Stabilize currency and financial system
SSC CGL Tips:
- Focus on Repo Rate, CRR, SLR, and MPC.
- Know difference between Monetary and Fiscal Policy.
- Track current RBI decisions in current affairs.
