Monetary Policy Essay

In the subsequent years the bank’s sale of government securities exceeded its purchases.But this excess sales method was discontinued between 19 with a view to expand currency and credit in the economy. Liberalisation of the Bill Market Scheme: The Reserve Bank has liberalised the bill market Scheme, as a result, the commercial banks receive additional funds from the Reserve Bank to meet the credit requirements of the borrowers.Such a policy refers to the use of instruments of credit control by the Reserve Bank so as to regulate the amount of credit creation by the banks. Rowan has defined Monetary Policy as “discretionary act undertaken by the authorities designed to influence (a) the supply of money (b) cost of money or rate of interest and (c) the availability of money”.

Monetary policy influences the supply of money the cost of money or the rate of interest and the availability of money.

One of the most important functions of Reserve Bank is to formulate and administer a monetary policy.

In the recent years, the banks are permitted to refinance equal to one percent of their time and demand liabilities. Refinance facilities are available for providing food procurement credit as well as export credit.

The scheduled banks can also get their bills of exchange, promissory notes and hundis rediscounted with the Reserve Bank, but the maximum duration of these bills should not be more than 3 months. Establishment of Various Financial Institutions: The Reserve Bank has played the main role in the establishment of various financial institutions in the country, through which the Reserve Bank provides medium term and long term credit facilities for development. (vi) ARDC—Agricultural Refinance and Development Corporation. (vii) NABARD—National Bank for Agriculture and Rural Development. Deficit Financing: To continuously increase the supply of money in the country, the Reserve Bank has adopted the system of deficit financing for financing the budgetary deficit of the government.

Measures for Currency and Credit Expansion: For meeting the developmental needs of the economy the continuous expansion of currency and credit was required during the planning period.

This expansion has been achieved by using the following measures: 1.This report went into great detail on the state of the economy.The report stated that the economy as a whole was struggling yet stable.Since 1957, the Reserve Bank has included the export bills also in the bill market scheme, so as to help the commercial banks to provide credit to exporters also. Financing Facilities to the Priority Sectors: Even though, the general policy of the Reserve Bank is to control credit expansion, still it continues to provide credit facilities to priority sectors such as small scale industries and cooperatives.The Bank has been providing short term Finances to the rural cooperatives also. Refinancing and Rediscounting Facilities: The Reserve Bank also follows a policy of selective refinance and rediscount facilities.Revision of Open Market Operations: In October 1956, the open operations policy of the Reserve Bank was revised and it started giving discriminatory support to the sale and purchase of government securities.Initially, the bank made large purchases of government securities.However the inflation rate looked good and was not increasing at an uncontrollable rate.Here is an essay on the ‘Monetary Policy’ for class 11 and 12.(2) Controlled Expansion: The second objective is to control the prices and reduce the inflationary pressures in the economy.The monetary policy of the Reserve Bank during the planning period is appropriately termed as that of “Controlled expansion”.


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