Monetary Policy

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Policy taken by RBI to regulate Credit flow [Quantitative tools- Amount of loan into economy & Qualitative tools (Where the loan goes – which sector, what purpose)] & control Inflation.
  • The policy by which the desired level of money flow, its demand and flow of credit is regulated is known as the credit and monetary policy.
  • All over the world it is announced by the central banking body of the country—as the RBI announces it in India.
The overall main objectives of the monetary policy are:
  1. To maintain economic and financial stability (Inflation Regulation).
  2. To ensure adequate financial resources for the purpose of development. (GDP Growth)
  3. Adequate flow of credit to productive sectors. (Loan to Efficient sector).
  4. Equitable Distribution of Credit to all sections of people and to all sectors of economy (Inclusive Growth).
Other Objectives of Monetary Policy
  1. To promote High Economic Growth
  2. Promotion of export.
  3. To promote Investment.
  4. To have sufficient BOP (Balance of Payment).
  5. To promote efficiency and ease operational constraints in credit delivery.
  6. Seasonal requirement of Credit.
The Monetary policy tools are classified into two fold,
  1. Quantitative tools
  2. Qualitative tools
Quantitative Tools
  • Quantitative methods aim at controlling the cost and quantity of credit.
  • It deals with quantum of money and does not discriminate between sectors or end use of credit
  • They are mainly aimed at regulation of inflation
Qualitative Tools
  • Qualitative methods aim at controlling the use and direction of credit or money supply.
  • They regulate the quality of credit i.e., how beneficially the credit is utilised for the development.
  • They discriminate between the sectors.
  • They are used only to control the credit and not the inflation.

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