Home
Account Login
Not Logged In
☰
  • Trade Now
  • About Us
    • Why Choose Us
    • About Kotak Securities
    • About Kotak Group
    • Service
    • Media
    • Careers
    • Current Openings
  • Product
    • Asset Classes
      • Tax Free Bonds
      • Gold ETF
      • Stock Lending & Borrowing (SLBM)
    • Trading Tools
      • Kotak Stock Trader
      • Trade Smart Terminal
      • KEAT PRO X
      • Website
      • Call and Trade
      • Margin Calculator
    • Account Types
      • Demat Account
      • Private Client Group (PCG)
      • 2 in 1 Account
      • Trinity Account
      • NRI Account
      • Foreign Investors (QFI)
    • Value Added Features
      • Global Investing
      • Margin Intraday Square off (MIS)
      • Stock Basket (smallcase)
      • Margin Trading Facility
      • Super Multiple
      • BNST
      • Portfolio Tracker
      • Capital gain report
      • Use Stocks as Margin
      • Knowledge Bank
      • Refer and Earn
  • Pricing
  • Research
    • Live Research Calls
      • Fundamental Call
      • Technical Call
      • Derivatives Call
      • SIP Call
      • Top Monthly Picks
      • Pick of the Week
    • Kotak Research Centre
    • Latest Research Reports
      • Stock Recommendations
      • Research webinars
    • Sample Research Reports
  • Help
    • Contact Us
    • Get Your Account Statements
    • Open an account
    • Demos
    • Forms
  • More
    • Startup Engagement
    • Kotak University
    • Franchisee
Home » Research » How Is The Monetary Policy In India Decided

Articles

2014661830565536055253
How it helps?
  • Zero maintenance charges
  • Zero fees for demat account opening
  • Volume based brokerage
Reach Us
Learn the art of Investing

Read More >


  •     

    How is the monetary policy in India decided?

    Monetary policies of an economy mould its credit and financial stability with an aim to regulate inflation and cash flows


    Publish Date: February 26, 2019

    By: Sandhya Kannan, Head – Content

    Monetary policies are made to regulate the volume of credit created by banks and how it is supplied further with an aim to bring stability in terms of price and finances and generate adequate credit for the growth of the countries goals. It lays focus on the macroeconomic factors of an economy.

    What is a monetary policy?

    Monetary policy is the policy pursued by the central bank of a country for administering and controlling the country’s money supply, including currency and demand deposits, and managing the foreign exchange rates. The Reserve Bank of India is the supreme monetary authority of India and the RBI enjoys absolute power to control currency and credit in the country. On 1st April 1935, the Reserve Bank of India was established according to the RBI Act, 1934. At first, this bank was established as a joint stock bank with a share capital of Rs. 5 crores. On 1st January 1949, the RBI was nationalized by the Government of India. Since then, the RBI has been functioning as the central bank of India.

    Learn about the RBI credit policy stance here

    What is the difference between monetary and fiscal policy?

    We have first to understand the meaning of fiscal policy.

    Fiscal policy is a policy using which the government uses its expenditure and revenue programs to produce desirable effects. In other words, fiscal policy refers to government spending, borrowing, taxation, and debt management to attain and maintain full employment.

    What are the objectives of fiscal policy?

    The purpose of a robust fiscal policy in a developing economy such as India is as important as the monetary policy.

    Mobilization of resources is the chief aim of fiscal policy. Most developing countries are caught in a vicious cycle of poverty. The most important objectives of the fiscal policy are to break this cycle of poverty by increasing the increase in the rate of capital formation. This is done by maximizing taxes when possible, imposing new taxes, imposing tariffs if needed on imports and exports, and public borrowing and deficit financing.

    The aim of the fiscal policy in a developing economy is also to accelerate the rate of economic growth so that the real net income of the country can increase in the long run. The government through its taxation policy and public borrowing, deficit financing, subsidies, tax relief, can provide a sufficient impetus for growth and raising the level of economic activities.

    Monetary policy is primarily concerned with the interest rates. The interest rates can be lowered to increase economic activities, or they can be raised, which leads to a decrease in economic activities. The reason for this is businesses constantly need loans to function. A lower interest rate regime encourages new loans as working capital or for developing capital assets. However, this can lead to economic activity getting out of hand, which results in inflation. Inflation happens because by lowering interest rates, too much money circulates inside the financial system. In this situation, the central banks raise the interest rates usually at a rate of 0.25% every few weeks to slow the economy down. Increased interest rates encourage saving and suck money out of the economic system and bring inflation under control.

    While fiscal policy impacts the economy through taxation, deficit financing, and subsidies, monetary policy affects it through the supply of money circulating in the system. The finance department of the government (also known as the treasury department in some countries) handles the fiscal policy whereas the central bank is in charge of the monetary policy. It is of utmost importance that the two functions independently of each other to make economic growth possible at reasonably low rates of inflation.

    Know about a dovish monetary policy here

    Who decides the monetary policy?

    As has been noted before, the monetary policy of India is determined by the RBI. The RBI makes use of many different types of measures to control the amount of money in the system.

    Most effective forms of monetary control include policies such as bank rate and open market operations.

    Bank rate - The bank rate is the standard rate at which the Reserve Bank discounts or buys bills or securities from commercial banks. A change in the bank rate influences the cost and quantum of credit available for lending. The RBI has used bank rate mainly as a tool for controlling inflation.

    Open market operations – It refers broadly to the actions by the Reserve Bank to buy and sell government bonds. Open market operations principally are used to raise funds and provide liquidity to the government. Commercial banks invest their surplus in buying the government bonds and in this way the Reserve Bank can act as an avenue for public deposits to find its way into government coffers.

    Who decides the monetary policy?

    There are principally two factors that determine the monetary policy.

    Expansion in the supply of money – In a developing economy like India, money supply has to be expanded sufficiently to match the growth of GDP. Although it is difficult to say what relation must ideally exist between the increase in money supply and growth of national income, there is exists a close link between the two. Therefore, a sudden spurt in GDP leads to an inflationary period and vice versa. The purpose of the monetary policy is to keep a close watch on the relationship between the rise and fall of GDP vis-a-vis the expansion and contraction of monetary supply.

    Restraint upon secondary expansion of credit – The deficit budget is an indispensable source of funds for the government. When the government spends through deficit financing, there is a domino effect. The money finds its way into the hands of businesses, which deposit it in a bank which in turn lends it out, and the process creates secondary credit. It is very essential to control the growth of this credit, since too much can lead to inflation.

    To conclude, it can be seen that the RBI is the watchdog of the monetary system and solely in charge of the monetary policy of India. It is also the banker to commercial banks and determines the prevalent lending rate by these banks. Smooth and independent functioning of the central bank is pivotal to the development of an economy. The monetary system of India is centered around the Reserve Bank, which keeps a close eye on the day to day economic developments.

    Also read:  

    • 6 assumptions influencing the monetary policy
    • 4 things about stock market bubbles
    • Kotak's 3-in-1 Account
    • Stock Recommendation MHRIL
    • Half a chocolate, double the joy

    Click here to go back










Stock Market Sectors :        A | B | C | D | E | F | G | H | I | J | L | M | N | O | P | R | S | T | V | W |

About Us

  • • Branch Locator
  • • About Kotak Securities
  • • Awards and Accolades
  • • About Kotak Group
  • • Technology
  • • Strong Research
  • • Customer Support Chat
  • • Brokerage Charges

Asset Classes

  • • Equity Trading
  • • Derivative Trading
  • • Mutual Fund Investment
  • • IPO
  • • Gold Funds
  • • Currency Derivatives
  • • Fixed Deposits & Tax Free Bonds
  • • Debentures

Derivatives Market

  • • Most Active Contracts
  • • Gainers
  • • Losers
  • • Top Volume Traded
  • • Top Value Traded
  • • Most Active Put
  • • Most Active Call
  • • Open Interest
  • • Highest in Premium
  • • Put Call Ratio

Investment Knowledge Bank

  • • Share Market Basics
  • • What is Demat Account
  • • What are Derivatives?
  • • What are Futures?
  • • What are Options?
  • • What are Mutual Funds?
  • • Basics of Financial Planning
  • • Calculators
  • • Videos
  • • Meaningful Minutes

Trading Tools & Research Reports

  • • KEAT PRO X
  • • Kotak Stock Trader APP
  • • Fastlane
  • • Xtralite
  • • Dealer assisted trading
  • • Call and Trade
  • • Investors Research
  • • Trader Research
  • • Mutual Fund Research
  • • Fundamental Analysis Reports
  • • Technical Analysis Reports
  • • Derivative Reports
  • • Currency Derivative Reports

Account Types & Value Added Services

  • • Demat Account
  • • 2 in 1 Account
  • • Trinity Account (3-in-1 Account)
  • • Linked Account
  • • NRI Account
  • • PMS
  • • Margin Trading
  • • BNST
  • • TradeSmart Store
  • • SMS Alerts
  • • AMO

Equity Market

  • • Share Market Live
  • • Gainer
  • • Loser
  • • Most Active Stocks
  • • Volume Buzzer
  • • 52Wk High
  • • 52Wk Low
  • • All Market News
  • • Bullion News
  • • Economy General
  • • Corporate Actions
  • • Other News
CUSTOMER CARE Chat with us
77389 88888WhatsApp Chat
(Add city STD code while calling from Mobile)

TIME:
Customer Service:- Mon to Fri – 9.00 AM TO 6.00 PM
Call and Trade:- Mon to Fri – 8.30 AM TO 5.30 PM

For Call & Trade, dial 080 4725 3255
Write to us at service.securities@kotak.com for Trading Account-related queries and ks.demat@kotak.com for Demat Account-related queries

Connect with us

No need to issue cheques by investors while subscribing to IPO. Just write the bank account number and sign in the application form to authorise your bank to make payment in case of allotment. No worries for refund as the money remains in investor's account.

KYC is one time exercise while dealing in securities markets - once KYC is done through a SEBI registered intermediary (broker, DP, Mutual Fund etc.), you need not undergo the same process again when you approach another intermediary. Attention Investors Prevent Unauthorized Transactions in your demat / trading account --> Update your Mobile Number/ email Id with your stock broker / Depository Participant. Receive information of your transactions directly from Exchanges on your mobile / email at the end of day and alerts on your registered mobile for all debits and other important transactions in your demat account directly from NSDL/ CDSL on the same day." - Issued in the interest of investors. Circular No.: NSDL/POLICY/2014/0094, NSE/INSP/27436, BSE - 20140901-21

Kindly note that as per NSE circulars nos: NSE/INVG/36333 dated November 17, 2017, NSE/INVG/37765 dated May 15.2018 and BSE circular nos: 20171117-18 dated November 17, 2017, 20180515-39 dated May 15.2018, trading in securities in which unsolicited messages are being circulated is restricted. The list of such stocks are available on the website of NSE & BSE. In case of any queries, request you to kindly get in touch with Customer Service on 18002099191/9292

Kotak securities Ltd. having composite licence no.CA0268 is a Corporate Agent of Kotak Mahindra Life Insurance Company Limited and Kotak Mahindra General Insurance Company Limited. We have taken reasonable measures to protect security and confidentiality of the Customer information.

The Stock Exchange, Mumbai is not in any manner answerable, responsible or liable to any person or persons for any acts of omission or commission, errors, mistakes and/or violation, actual or perceived, by us or our partners, agents, associates etc., of any of the Rules, Regulations, Bye-laws of the Stock Exchange, Mumbai, SEBI Act or any other laws in force from time to time.
The Stock Exchange, Mumbai is not answerable, responsible or liable for any information on this Website or for any services rendered by our employees, our servants, and us.

Please do not share your online trading password with anyone as this could weaken the security of your account and lead to unauthorized trades or losses. This cautionary note is as per Exchange circular dated 15th May, 2020.

Note: NSDL and CDSL have mapped Unique Client Codes (UCC) to demat accounts based on PAN, refer NSDL and CDSL circulars. Format for linking/delinking the UCC: NSDL: link | CDSL: link.

Clients are required to keep all their account related information up-to-date including details like email id, mobile number, address, bank details, demat details, income details etc. which will help the client to timely receive any information and to avail the various facilities relating to the Trading and Demat account. To update the details, client may get in touch with our designated customer service desk or approach the branch for assistance.

Investor Awareness regarding the revised guidelines on margin collection:-
Attention Investors :

1. Stock Brokers can accept securities as margin from clients only by way of pledge in the depository system w.e.f. September 1, 2020.
2. Update your mobile number & email Id with your stock broker/depository participant and receive OTP directly from depository on your email id and/or mobile number to create pledge.
3. Pay 20% upfront margin of the transaction value to trade in cash market segment.
4. Investors may please refer to the Exchange's Frequently Asked Questions (FAQs) issued vide circular reference NSE/INSP/45191 dated July 31, 2020, notice no. 20200731-7 dated July 31, 2020 and NSE/INSP/45534 dated August 31, 2020, notice no. 20200831-45 dated August 31, 2020 and other guidelines issued from time to time in this regard.
5. Check your Securities /MF/ Bonds in the consolidated account statement issued by NSDL/CDSL every month.
.......... Issued in the interest of Investors

Clients are hereby cautioned not to rely on unsolicited stock tips / investment advice circulated through bulk SMS, websites and social media platforms. Kindly exercise appropriate due diligence before dealing in the securities market.

Requirement of obtaining consent through OTP has been waived for off market transfer reason code “Implementation of Government / Regulatory Direction / Orders” Consent through OTP would continue to be required for all other reasons for any off-market transfers. Refer NSDL circular.

Covid-19 impact to clients:-
1. Applicable to clients on whose email id contract notes and other statements get bounced or who have opted for Physical contract notes/ other statements or Digital and Physical contract notes/ other statements :Due to the nationwide lockdown, we are unable send physical contract notes and other statements. To view them, log into www.kotaksecurities.com
2. Kindly update your email id with us to receive contract notes/various statements electronically to avoid any further inconvenience.
3. We are unable to issue the running account settlement payouts through cheque due to the lockdown. We request you to update your Bank account details to facilitate direct transfer to your linked bank account. You may approach our designated customer service desk or your branch to know the Bank details updation procedure.
4. Exchange advisory: Investors are advised to exercise caution while taking investment decisions in these unpredictable times. Clients are also encouraged to keep track of the underlying physical as well as international commodity markets. Clients are advised to undertake transactions after understanding the nature of the contractual relationship into which they are entering and the extent of its exposure to risk. Clients are further advised to follow sound risk management practices and not to be carried away by unfounded rumors, tips etc.

Filling complaints on SCORES- Easy & Quick
a. Register on SCORES portal  |  b. Mandatory details for filling complaints on SCORES  i. Name, PAN, Address, Mobile Number, E-mail ID  |  c. Benefits:  i. Effective Communication  ii. Speedy redressal of the grievances

Charges for Other Services  |  Disclaimer  |  Sitemap  |  Privacy & Security  |  256 Bit Encryption  |  BSE  |  NSE  |  MSE  |  MCX  |  SEBI  |  SCORES  |  Anti Money Laundering Measures  |  Important Policies  |  Dos & Donts  |  List of GST Registration Number

© 2005 Kotak Securities Limited.

Registered Office: 27 BKC, C 27, G Block, Bandra Kurla Complex, Bandra (E), Mumbai 400051. Telephone No.: +22 43360000, Fax No.: +22 67132430.
Correspondence Address: Infinity IT Park, Bldg. No 21, Opp. Film City Road, A K Vaidya Marg, Malad (East), Mumbai 400097. Telephone No: 42856825.

CIN: U99999MH1994PLC134051. SEBI Registration No: INZ000200137(Member of NSE, BSE, MSE, MCX & NCDEX), AMFI ARN 0164, PMS INP000000258 and Research Analyst INH000000586.

NSDL/CDSL: IN-DP-NSDL-23-97

New To share Market?

Open Your Account Today!

New Customer?

Hurry! Sign up for Free Intraday Trading now

BROKERAGE FREE

on intraday trades

AVAIL THE OFFER NOW

NO ACCOUNT OPENING CHARGES



Submit

Please Note

That by submitting the above mentioned details, you are authorising Kotak Securities & its sub-brokers & agents to call you and send promotional communication even though you may be registered under DNC.

Open An Account