Macroeconomic Policy Macroeconomic policy refers to action taken by the government through the different policies to achieve the macroeconomic objectives of the economy.

MONETARY POLICY

Monetary policy is an operation by the monetary authorities of the country and it operates through changes in the quantity of money .Thus its immediate impact is felt in the money market

MONETARY POLICYThe authorities designed to influence (a) the supply of money (b) cost of money or rate of interest and (c) the availability of money.”

OBJECTIVES OF MONETARY POLICY

To accelerate the process of economic growth.

Controlled expansion.

MEASURES OF MONETARY POLICY

(A) Measures for expansion of currency and credit.

(B)Measures for controlling of credit.

(A) Measures for currency and credit expansion1) Revision of open market operation.

2) Deficit financing.

3) Anti – inflationary fiscal policy.

4) Allocation of credit.

(B) Measures for controlling of creditGeneral or Quantitative measures.

a. Bank rate.

b. Open market operations.

c. Cash reserve requirements.

d. Statutory liquidity ratio.

EVALUATION OF MONETARY POLICY

Minor and restricted role in economic development.

Lack of coordination between monetary and fiscal policy.

Imbalance in credit allocation.

Unsatisfactory role of capital market.

Excessive budgetary deficit and government borrowings.

Excessive increase in bank credit to the commercial sector.

Limited role in curbing the inflationary pressures.

Increased liquidity of commercial banks.

Existence of BLACK MONEY.

Under developed money market.

SUGGESTIONS of the CHAKRAVARTY COMMITTEE

Price stability.

Non – Inflationary financing of plans.

Monetary targeting.

Co-ordination of monetary and fiscal policies.

Interest rate policy.

Credit planning.

Restructured money market.

Priority sector lending.

Role of RESERVE BANK for the conduct of monetary policy.

MONETARY POLICY 2014 - 2015

In the wake of the global economic crisis, the reserve bank pursued an accomodative monetary policy beginning mid – september 2008. This policy instiled financial crises on the economy and ensured that the economy started recovering aheadof most of the other economies.

The monetary policy response in INDIA since October 2009 has been caliberated to India`s specific macroeconomic conditions.

Highlights of RBI monetary policy statement (2015-16)1) Short-term lending rate (repo) unchanged at 7.5%.

2) Cash Reserve Ratio unchanged at 4%.

3) Retains Statutory Liquidity Ratio at 21.5%.

4) Estimates GDP growth at 7.8% in FY’16, up from 7.5% in FY’15 .

5) Forecasts CPI inflation at 5.8 pc by March 2016.

6) 100% CPI inflation to dip to 4% in August 2015.

7) Hailstorms in March affected 17% of the rabi crop sown area .

8) Future rate cuts will depend on interest rate reduction by banks.

9) India better prepared to deal with volatility post US Federal Reserve rate action.10) State cooperative banks to be allowed to set up off-site/ mobile ATMs without prior approval from RBI.11) State cooperative banks to be allowed to set up off-site/ mobile ATMs without prior approval from RBI.

Major conditions on which monetary policy has been formed

Consolidating Recovery.

Accentuated Inflationary Pressures.

Higher Issuance of Securities.

Limitations 1) The existence of a time lag .

2) The presence of non-bank financial intermediaries .

3) The underdeveloped nature of the money and capital market