Effectiveness Of Monetary Policy Essay

Monetary policy is basically a stabilization policy adopted by a country to deal with various kinds of economic imbalances that occur in the country. It’s a flexible instrument which allows authorities to move quickly to achieve stabilization, since it deals with the monetary aspect of the general economic policy. It controls the supply of money and often targets a rate of interest and also controls exchange rate and influence credit conditions for the purpose of promoting economic growth and stability. It is often termed to be as an expansionary or contractionary. It basically deals in open market operations, and basically controlling the money supply through buying and selling various financial instruments such as T-Bills, bonds etc. Control of money supply through an appropriate monetary policy is greatly effective in controlling inflation. Objectives: The main objective of the project is to understand the effectiveness of the RBI monetary policy for: * It is well used in stabilizing inflation in a country under the CPI index * Maintaining price stability i.e. a targeted price level can be reached over time * Maintaining desired growth rate over a period of time  * Understanding various monetary policy tools and its impact in short term as well as in long term. * Achieving a stable foreign exchange rate Issues or problems to be studied: High inflation usually has an adverse effect on grow. Distortion of relative prices which lowers economic efficiency, redistribution of wealth between debtors and creditors etc. are all factors that affect high inflation. There is always thrift as to increasing the financial stability of the country, but the main priority should be maintaining stability in the banking system. There is always a tradeoff between inflation and growth of the country so which policy should be implemented by RBI to curb inflation without hampering the growth rate of the country and the main issue is whether RBI is capable of controlling inflation while maintaining economic stability. Sources of Data: The data collected will be from the following secondary sources: * Books * RBI circulars from RBI website * Journals and publications * Other sources from internet Expected out-come of the project: The outcome of the project will be highlighted in the following areas: * How well the RBI has been successful in taming inflation * How all the different rates of interest i.e. the bank rate, CRR, SLR etc. is managed as to achieve a desired growth rate of the economy * Providing an in-depth analysis so as to how different monetary tools are used in short term as well as long term basis