.

MONETARY POLICY IN OPERATION

Monetary policy sometimes works under conflicting goals,ex-the

desire to avoid inflation versus the desire to boost output and employment.ex-central bank can fix the reserves or it can set the interest rates on any one class of debt instruments.it can exert influence on these economic process.

USE OF MONEY AS AN

INTERMEDIATE TARGET
The central bank can decide on the amount ofmoney supply in

a given year, but cannot directly set the amount in the financial system;besides,it cant directly control the volume of bank credit.

E-MONEY AND FALLING DEMAND FOR CENTRAL BANK MONEY

Central bank faces a new threat .long run factors,technological ones in

particular,reduce the effectiveness of monetary policy.these new developments threaten to reduce the demand for central bank money to a level where the central banks leverage over the monetary system.electronics substitutes for cash become more widely available.

IMPLICATIONS OF A DECLINING

DEMAND FOR BASE MONEY

THE declining demand for base money causes major problems for central

bankers.first as base money less significant,it will gradually lose its effeciveness as a channel through which the central bank can influence the broader monetary system. rates more vulnerable to external shocks and in particular to change in the technological and other factors that influence the demand for currency.

Secondly the decline in the demand for base money would make price and interest

GLOBALISATION AND THE MONETARY POLICY

The process of globalisation and liberalisation has necessitated widening

of the mandate of central banks.for their policies to be effective ,monetary authorities are required to modify the way in which they conduct monetary policies.central banks in emerging markets also face similar issues.

MONETARY POLICY AND INFLATION

One of the most significant developments in the theory and practice of

monetary policy in he recent years has been inflation targeting.The rationable for inflation targeting emerges as a joint sequence as the joint consequence of two tools of monetary policy.it can be either open market operation or the interest rate the bank charges on advances.in case of short run there is nothing monetary policy can do about either output or employement.

MONETARY POLICY IN INDIA

BANK RATE The bank rate is the rate at which bank borrow from RBI(reserve bank of india).it is also defined as the rate of which reserve bank gives loans to banks by discounting bills.any revision in the bank rate by the RBI is a signal to banks to banks to revise deposit rates as well as prime lending rate.

.REPO RATE
The repo rate is the rate at which RBI borrows from the banks.this is also the floor rate at which overnight deals are struck.besides lowering the cost of funds ,a lower repo rate will see the emergency of a short term yeild curve.

CRR AND SLR

. Crr is the cash revenue ratio which is the percentage of net funds that commercial banks have to park fortnightly with the RBI to do business.lowering of crr means means that more money comes into circulation.In addition to the crr requirement banks are supposed o maintain a certain percent of net deposits in the govement seurities and similar instruments specified.this is known as statutory liquidity ratio(slr) which is 25% present.

MONETARY POLICY OPERATIONS

LIQUIDITY MANAGEMENT:

The reserve bank modulates market liquidity through

a mix of repo operations.as a capital flows persisted,the reserve bank portfolio necessited a switch from out right OMO TO REPO operations.the monetary policy operations has emerged as a key instrument of liquidity management.

INTEREST RATE POLICY

The reserve bank continued to take policy initiatives

to impart a greater degree of flexibility to the interest rate structure.it also follow credit policy.