Rbi Monetary Policy

Topics: Monetary policy, Central bank, Federal Reserve System Pages: 8 (2475 words) Published: August 25, 2013
The central bank of the country is the Reserve Bank of India (RBI). It was established in April 1935 with a share capital of Rs. 5 crores on the basis of the recommendations of the Hilton Young Commission. The share capital was divided into shares of Rs. 100 each fully paid which was entirely owned by private shareholders in the begining. The Government held shares of nominal value of Rs. 2,20,000.

Reserve Bank of India was nationalised in the year 1949. The general superintendence and direction of the Bank is entrusted to Central Board of Directors of 20 members, the Governor and four Deputy Governors, one Government official from the Ministry of Finance, ten nominated Directors by the Government to give representation to important elements in the economic life of the country, and four nominated Directors by the Central Government to represent the four local Boards with the headquarters at Mumbai, Kolkata, Chennai and New Delhi. Local Boards consist of five members each Central Government appointed for a term of four years to represent territorial and economic interests and the interests of co-operative and indigenous banks. NEED OF RBI

The Reserve Bank of India Act, 1934 was commenced on April 1, 1935. The Act, 1934 (II of 1934) provides the statutory basis of the functioning of the Bank.

The Bank was constituted for the need of following:
* To regulate the issue of banknotes
* To maintain reserves with a view to securing monetary stability and * To operate the credit and currency system of the country to its advantage. Functions of Reserve Bank of India 
The Reserve Bank of India Act of 1934 entrust all the important functions of a central bank the Reserve Bank of India.  1.    Issue Of Currency Notes :-
Under section 22 of RBI Act, the bank has the sole right to issue currency notes of all denominations except one rupee coins and notes. The one-rupee notes and coins and small coins are issued by Central Government and their distribution is undertaken by RBI as the agent of the government. The RBI has a separate issue department which is entrusted with the issue of currency notes.

2.    Banker To The Government :-
The RBI acts as a banker agent and adviser to the government. It has obligation to transact the banking business of Central Government as well as State Governments. E.g.:- RBI receives and makes all payments on behalf of government, remits its funds, buys and sells foreign currencies for it and gives it advice on all banking matters. RBI helps the Government – both Central and state – to float new loans and manage public debt. The bank makes ways and meets advances of the government. On behalf of central government it sells treasury bills and thereby provides short-term finance.

3.    Banker’s bank And Lender Off Last Resort :-
RBI acts as a banker to other banks. It provides financial assistance to scheduled banks and state co-operative banks in form of rediscounting of eligible bills and loans and advances against approved securities. RBI acts as a lender of last resort. It provides funds to bank when they fail to get it from other sources. It also acts as a clearing house. Through RBI, banks make interbanks payments.

4.    Controller Of Credit :-
RBI has power to control the volume of credit created by banks. The RBI through its various quantitative and qualitative techniques regulates total supply of money and bank credit in the interest of economy. RBI pumps in money during busy season and withdraws money during slack season.

5.    Exchange control And Custodian Of Foreign Reserve :-

RBI has the responsibility of maintaining fixed exchange rates with all member countries of IMF. For this, RBI has centralized all foreign exchange reserves (FOREX). RBI functions as custodian of nations foreign exchange reserves. It has to maintain external valu of Rupee. RBI achieves this aim through appropriate monetary fiscal and trade policies and exchange control....
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