measures by RBI
&
it’s effectiveness
WHAT IS CENTRAL BANK…?
Y.V.REDDY
15 DIRECTORS
(NOMINATED BY
CENTRAL
GOVERNMENT)
What is recession…?
• An economy which grows over a period of time tends to
slow down the growth as a part of the normal economic
cycle. An economy typically expands for 6-10 years and
tends to go into a recession for about six months to 2 years.
• A recession normally takes place when consumers lose
confidence in the growth of the economy and spend less.
• This leads to a decreased demand for goods and services,
which in turn leads to a decrease in production, lay-offs
and a sharp rise in unemployment.
• Investors spend less as they fear stocks values will fall and
thus stock markets fall on negative sentiment.
What is monetary policy…?
It is concerned with the changing the supply of money stock and
rate of interest for the purpose of stabilizing the economy at full
employment or potential output level by influencing the level of
aggregate demand.
At times of recession monetary policy involves the
adoption of some monetary tools which tends to increase the
money supply and lower interest rate so as to stimulate
aggregate demand in the economy.
At the time of inflation monetary policy seeks to
contract aggregate spending by tightening the money supply or
raising the rate of return.
Objectives of monetary
policy…
• To ensure the economic stability at full
employment or potential level of output.
Investment increases
CRR 8.25 9 5
Reverse 6 6 3.5
Repo
Bank Rate 6 6 6
Trends in key policy rates
Effectiveness
• Prevented the recession…