Preview of Monetary Policy of 7th Feb 2019

Good evening everyone, this is the first official article on MONETARY POLICY in our blog which talks about what is monetary policy, forecasts and is the implication of it.

Monetary policy is a set of economic policy that manages the size and growth of the money supply in the economy. It is a powerful tool to regulate macroeconomic variables like inflation and unemployment. The monetary policy implemented through adjustment of interest rates, purchases and selling of government securities, and changing the amount of money circulating in the economy.

As we all know monetary policy comes once every 2 months and the central bank is responsible for the monetary policy.

I am expecting this policy to be an expansionary monetary policy it is a monetary policy that aims to increase the money supply in the economy by decreasing interest rates, purchasing government securities by central banks, and lowering the reserve requirements for banks. An expansionary policy lowers unemployment and stimulates business activities and consumer spending. The overall goal of the expansionary monetary policy is to fuel economic growth. However, it can also possibly lead to higher inflation.

We have seen the recent budget in which government has taken major steps like tax exemptions, because of tax exemptions the consumption power of a customer will increase, and the customer will consume more, if he consumes more customer will pay more and government will get the revenue through the GST. Everything is good but when the customer is consuming more, the producer has to produce more, to produce more producer need money, from where producer gets money from banks, if the interest rates are high producer will think to take money from the banks, if he sticks to his previous production, it will create Inflation, to match the demand the producers have to produce more, so government and RBI to keep inflation stable RBI has to take a step, so I am expecting a rate cut from tomorrows monetary policy.

The previous repo rate is at 6.5% and reverse repo is at 6.25%.  From 2000 to 2018 the average repo rate is 6.66.  On 2000 August repo rate has recorded all-time high 14.50% and on 2009 April repo has recorded an all-time low which is 4.25. I am expecting no changes in CRR and SLR. Which are 4% (CRR) and 19.25 (SLR)?

-By

Afreed Khan (afreedshaik536@gmail.com)