This entails the expansion or contraction of government expenditures related to specific government programs such as building roads or infrastructure, military expenditures and social welfare programs. Gregory Monetary policy instruments pdf, Principles of Economics. This page was last edited on 12 November 2017, at 15:53. It is so designed as to maintain the price stability in the economy.
Price Stability implies promoting economic development with considerable emphasis on price stability. The centre of focus is to facilitate the environment which is favourable to the architecture that enables the developmental projects to run swiftly while also maintaining reasonable price stability. One of the important functions of RBI is the controlled expansion of bank credit and money supply with special attention to seasonal requirement for credit without affecting the output. The aim here is to increase the productivity of investment by restraining non essential fixed investment. Overfilling of stocks and products becoming outdated due to excess of stock often results in sickness of the unit.
To avoid this problem the central monetary authority carries out this essential function of restricting the inventories. The main objective of this policy is to avoid over-stocking and idle money in the organization. It is another essential aspect where the central banks pay a lot of attention. It tries to increase the efficiency in the financial system and tries to incorporate structural changes such as deregulating interest rates, ease operational constraints in the credit delivery system, to introduce new money market instruments etc. RBI tries to bring about the flexibilities in the operations which provide a considerable autonomy. It encourages more competitive environment and diversification.
It maintains its control over financial system whenever and wherever necessary to maintain the discipline and prudence in operations of the financial system. As per the provisions of the RBI Act, out of the six Members of Monetary Policy Committee, three Members will be from the RBI and the other three Members of MPC will be appointed by the Central Government. Open market operation makes bank rate policy effective and maintains stability in government securities market. RBI in the form of reserves or balances. RBI is empowered to vary CRR between 15 percent and 3 percent.
1990 to 5 percent in 2002. As of 4 October 2016, the CRR is 4. Every financial institution has to maintain a certain quantity of liquid assets with themselves at any point of time of their total time and demand liabilities. These assets have to be kept in non cash form such as G-secs precious metals, approved securities like bonds etc.