ipl-logo

Credit Control Policy In India

726 Words3 Pages

Credit control policy by RBI
The credit control measures are very essential for proper functioning of an economy. The RBI controls the monetary policy of India. The RBI aims at controlling inflation by controlling secondary expansion of credit and regulating supply of money in order to meet the different sectors of economy to accelerate growth of the Indian economy. The Reserve Bank of India counters the inflation and deflation in the economy of India using 2 measures The RBI’s objectives of monetary policy are The bank rate
Bank rate is one of the major tools for credit control which affects the cash flow in long term. It is the rate at which the RBI lends to the commercial banks. An increase in bank rate leads to an increase in interest …show more content…

The RBI enter in the buying and selling of government securities of banks and their by influencing cash reserve position and credit creation policy. The central bank trades with banks with government securities only. When there is an inflation to reduce the cash in the economy RBI sells the government securities in open market. When there is a deflation that is when cash in economy is less government securities are purchased by the RBI so that the banks get enough cash which will pump cash to economy.
Manipulation of CRR
Cash Reserve Ratio is the portion of Net Demand and Time Liabilities(NDTL) that the banks have to keep in the RBI(no interest for banks) which is fixed by the RBI. The RBI has the freedom to change the CRR in accordance with economic scenario. If RBI increases CRR, the cash available with the commercial banks will correspondingly come down there by reducing inflation and vice versa.
Manipulation of …show more content…

Repo rate is the rate at which commercial banks borrows rupees from RBI. RBI uses this as a tool to control money flow in economy. A reduction in the repo rate will help banks to get money at cheaper rate and thereby increasing the money flow into the economy. When the repo rate increases borrowing form RBI becomes more expensive and banks are automatically forced to increase the rate of interest for public their by reducing inflation.
Reverse Repo rate is the rate at which RBI borrows money from commercial banks. Banks are always happy to lend money to RBI since their money is in the safe hands with a good interest. An increase in reverse repo rate can cause the banks to transfer more funds to RBI due to this attractive interest rates. During inflation RBI increases reverse repo rate their by reducing cash flow to economy by providing interesting rates of the banks.

Selective Qualitative Credit

Show More
Related

  • Econ211 Unit 3

    896 Words  | 4 Pages

    According to the policy, the provision of money in the economy as an effect of increasing or decreasing the inflation rate, thus, the side effect of money supply on the economy can be monitored and the inflation effect associated with the policy should be check by reducing the money supply to the economy (Hoag & Hoag, 2006). . The demand and supply of money in the economy depends on the interest rate of the country. An interest rate of almost zero suggests that the demand for money in the economy by investors is slight. Thus, the production of the economy is very small. From the supply side means the economy is full of money already therefore the policy necessary by monetary is to reduce the money supply by raising interest rate of the central bank and selling treasury bills and treasury bonds to the public.

    Read More

  • Federal Reserve Tools Essay

    462 Words  | 2 Pages

    This increases the money supply, the rate of inflation and economic

    Read More

  • The Federal Reserve Act Of 1913: A Case Study

    538 Words  | 3 Pages

    Now that there are more funds available to lend, the interest typically will drop. With lower interest rates, more people are likely to borrow, both personal loans and business loans. With the increase in expenditures, the economy is stimulated. Consumer confidence in the economy equates to spending. Spending creates jobs and more confidence in the

    Read More

  • How Does The Federal Reserve Act Affect The Economy

    288 Words  | 2 Pages

    For example, if the Federal Reserve decreases the discount rate, then the bank can afford to borrow the money and in turn, the consumer would be able to benefit

    Read More

  • How Is The Reaganomics Be Used To Change The Economy

    809 Words  | 4 Pages

    The United States of America is known to be the land of opportunity, and many presidents tried different kind of methods to change the US economy to the better. The Reganomics policy which is a policy by president Regan on how to change the course of the US economy. The Reganomics had good policies that made sense like reducing the growth of government spending which was a good point in order for the government to save its money. Reduce the marginal tax rates on income from both labor and capital which could help them pay less tax, and also reduce regulation which could benefit the people of the US, and also reduce inflation by controlling the growth of the money supply. This is an important fact because the growth of the money supply is very important.

    Read More

  • Explain How Does The Federal Government Regulate The Economy

    279 Words  | 2 Pages

    This gives government the ability to keep a steady balance in the economy. Another way the federal government can regulate money is by the monetary policy, which gives the government the ability to manipulate the money supply. As long as this power isn 't abused it can help restore order in the economy. Use what you’ve learned about the structure of Russia’s government and the power of its branches to describe how public

    Read More

  • What Effect Does The Federal Reserve Have On The Economy

    527 Words  | 3 Pages

    The tool that is mostly utilized by the Federal Reserve is the so called Monetary Policy, which is best described as the activities that the Federal Reserve assumes in order to create a change or affect the credit and the amount of money that circulates in the U.S economy. By changing the amount of money and credits circulating through the economy, the Federal Reserve is able to control or have an effect in the cost of credits also known as interest rates, which would result as lower prices in interest rates, factor that promotes and positively affects the U.S economy. There are three tools that the Federal Reserve utilizes to influence the Monetary Policy: one is to buy and sell U.S securities in the financial markets, also known as open market operations, which main purpose is to influence the level on the reserves in the banking system, as well as

    Read More

  • Pros And Cons Of Abolishing The Federal Reserve

    1477 Words  | 6 Pages

    And as the dollar becomes weaker, the government needs more of this paper money so the Federal Reserve print more for it, thus continuing the cycle. However, the Federal Reserve states that the Federal Reserve Note is backed by something; the US government or oil. They also state that the government should not have the power to print its own money.

    Read More

  • Federal Reserve Outline

    836 Words  | 4 Pages

    The Federal Reserve controls over the federal fund rates give it the ability to influence the general level of short-term market interest rates. The Fed has three main tools at its disposal to influence monetary policy which are the open-market operations, discount rate, and reserve requirements. b. Monetary policy is the actions of a central bank, currency board or other regulatory committee that determine the size and rate of the money supply, which in turn affects interest rates. The concept of Monetary Policy simply stated is that the cost of credit is reduced, more people and firms will borrow money and the economy will heat up. c. The controls that Federal Reserve used worked because the use of the three main tools the Fed uses is the most important that can manipulate monetary policy.

    Read More

  • Federal Reserve Essay Papers

    966 Words  | 4 Pages

    The main purpose to why the Federal Reserve System was made is because of banking panics. Before the Federal Reserve was established, the United States already went through several banking and financial catastrophe. The financial crisis from 1907 was the one that made Congress to come up with the Federal Reserve System because they wanted to have a more stable, safe, and flexible monetary system. According to Wikipedia, they try to state the problems of financial and banking panics, fulfill as the central bank, protect credit rights, manage the country’s money supply by achieving goals of maximum employment, keep costs stable and steady, stop inflation and deflation from occurring, and much more.

    Read More

  • Essay On The Federal Reserve System

    535 Words  | 3 Pages

    The third job of The Federal Reserve System is to issue currency. Currency refers to the physical coin or paper of money that serves in exchange. It is important for currency to be regulated in order to make sure monetary exchanges are even. The fourth job of The Federal Reserve System is to provide banking services to the United States government. The final job is to “supervise and regulate our financial institutions” (Slavin 2020).

    Read More

  • How Does The Federal Reserve Affect The Economy

    613 Words  | 3 Pages

    The Federal Reserve is one of the most powerful entities we have in the United States. The decisions that are made by the Federal Reserve will have an impact on every person that is living in the country of the United States and will have an impact on the global market. Two ways that the Federal Reserve may impact a person’s life and the global market are by inflation and monetary policies. Inflation is the sustained increase in the general level of prices for goods and services in a county, and is measured as an annual percentage change. (Investopedia)

    Read More

  • How Does The Federal Reserve Affect The Economy

    1239 Words  | 5 Pages

    Keywords: Monetary Policies, Central Banking System, Regulating Wealth, Money Supply, Inflation, Reserve

    Read More

  • Pestle Analysis Of Maybank Malaysia

    709 Words  | 3 Pages

    Example, Malaysia is a country with growing economy and general rules which effect Maybank would be interest rates. It would be difficult for the loaners to pay back the money if the interest rates is set too high. Then, most of Malaysian people bankrupt due to paying loans with high interest. This will not benefit Maybank because the money has been loaned out has not return in. So, Maybank is now giving out loans to boost the export activity for exporting activity.

    Read More

  • Roles Of Money In Macroeconomics Essay

    1772 Words  | 8 Pages

    This is primarily a tool at the disposal of the central bank of a country which uses different tools to manage the macro economic variables of a country to keep the economy stable or to stabilize it in situations of fluctuations. Monetary policy can be expansionary or contractionary depending on whether the money supply is being increased or decreased in the system so as to affect economic growth, inflation, exchange rates with other currencies and

    Read More

More about Credit Control Policy In India

Open Document