Evaluation of Monetary Policy over the last decade

Topics: Inflation, Monetary policy, Central bank Pages: 4 (1194 words) Published: December 8, 2013
I.Evaluation of RBI’s monetary policy over the last decade Effects of Monetary Policy and related tools to control the supply of money in the economy over the past 10 years: YearCRRSLRRepo RateExchange Rate (against $)


There were no significant changes in the monetary policies between 2004 and 2005. However, the interest rates were increased by 25 basis points as a measure to control increasing inflation. High crude oil prices along with increasing domestic demand had driven up prices, and hence the interest rates were increased as a regulatory measure. The repo rate was increased by 100 basis points the next year to 7.25% and the Cash Reserve Ratio was increased from 5 to 5.5. These monetary measures were in response to rising inflation. The CRR was increased significantly to 7.5 in 2007 due to increased money supply in the economy as a result of increased capital inflows. Also, the rupee value surged from 44.23 to 39.5. The CRR was then reduced to 5.50 again in 2008 and 5 in 2009 due to a severe credit crunch during that period. This was done to encourage investments, thereby improving employment levels and demand. There was also keen focus on infrastructure development during these periods. This CRR cut resulted in an injection of Rs.60,000 crores in the economy. Simultaneously, interest rates were also reduced to 6.5 and 4.75, respectively. The period from 2010 onwards has seen increasing inflation. There was increasing growth rate in various sectors, especially construction, mining and other industrial sectors. This was also due to low CRR rates in the previous years as a result of which there was increasing liquidity in the market. The CRR was accordingly increased along with the...
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