Central University Of South Bihar

Assignment of Money and Banking

Submitted to Dr. Rikil Chyrmang

Submitted by Prabhat Kumar
Programme - M.A Economics
(First Semester)
Enrollment No CUSB1801212019
 Computation of Growth Rate and Analysis
For Table 1
Introduction
Money is a medium of exchange for goods and
services. For the convenience of the society and with the
extension of the civilization and intermediate commodities to
buy and sell all goods and services excepted in exchange, and
that was familiar recognizable and generally expectable.

Money therefore, can be defined as any

generally accepted material even a peace of paper, marking a
promise which is used
as medium of exchange as well as a measure of value.

valuations and kinds of money

a) Metallic money
b) Credit money
a) Common money or current money consistent of coins of
different metal, paper
currency note of the central bank of the country.
b) Bank money consisting of bank balances or bank deposits
which can be withdraw
by the depositor anytime he likes.
FUNCTIONS OF MONEY
Primary function of money is
1)money is a medium of exchange.
2) it is a store of vlue,sometime specified as a temprory storeof value
or temprory bode of purchasing power.
3)it is standard of deferred payments.
4)it is a unit of account.
Historically the definition of money we have measured the
quantity of money in the economy as the sum of those items
that serve as mediumofpayment in the economy .however ,at
any time in a developed monetary economy ,there may be oth
items that do not directly serve as a medium of payments but
are readily convertible into the medium of payments at little
cost and trouble aand simultaneously be a store of value.such
items are close substitute for the medium of payments itself.

Money is any item or verifiable record that is generally accepted as payment

for goods and services and repayment of debts, such as taxes, in a particular
country or socio-economic context. The main functions of money are
distinguished as: a medium of exchange, a unit of account, a store of value and
sometimes, a standard of deferred payment. Any item or verifiable record that
fulfills these functions can be considered as money.

Money is historically an emergent market phenomenon establishing a

commodity money, but nearly all contemporary money systems are based on
fiat money. Fiat money, like any check or note of debt, is without use value as
a physical commodity. It derives its value by being declared by a government
to be legal tender; that is, it must be accepted as a form of payment within the
boundaries of the country, for "all debts, public and private".Counterfeit
money can cause good money to lose its value.

The money supply of a country consists of currency (banknotes and coins) and,
depending on the particular definition used, one or more types of bank money
(the balances held in checking accounts, savings accounts, and other types of
bank accounts). Bank money, which consists only of records (mostly
computerized in modern banking), forms by far the largest part of broad
money in developed countries.
Narrow money (m1)

Narrow Money (M1) is a concept of money supply that consists of base money and
the most liquid form of deposits in the banks and post offices.

Narrow Money (M1) = Currency with the Public + Demand Deposits with the
Banking System + ‘Other’ Deposits with RBI
= Currency with the Public + Current Deposits with the Banking System +
Demand Liabilities Portion of Savings Deposits with the Banking System +
‘Other’ Deposits with RBI

Growth rate of narrow money m1

Growth rate of Narrow Money=( current Yr. M1- Base Yr. M1/Base Yr. M1)*100

Narrow Money (M1)

At any point of time, the money held with the public has two most liquid
components

 Currency Component: This consists of all the coins and notes in the
circulation
 Demand Deposit Component: Demand Deposit component is the money
of the general public with the banks, which can be withdrawn by them
using cheques, withdrawals and ATMs.

The above two components i.e. currency component and demand deposit
component of the public money is called Narrow Money and is denoted by the
RBI as M1. Thus, M1 = Currency with the public + Demand Deposits of public in
Banks. When a third component viz. Post office Savings Deposits is also added
to M1, it becomes M2.
Growth Rate of narrow money(M1)

Growth rate of Narrow Money=( current Yr. M1- Base Yr. M1/Base Yr. M1)*100

Growth in narrow money

30.00
25.00 Growth in narrow
20.00 money

15.00 Linear (Growth in

narrow money)
10.00
5.00
0.00
1950-51

1971-72

1992-93

2013-14
1953-54
1956-57
1959-60
1962-63
1965-66
1968-69

1974-75
1977-78
1980-81
1983-84
1986-87
1989-90

1995-96
1998-99
2001-02
2004-05
2007-08
2010-11

2016-17
-5.00
-10.00
-15.00

Analysis Of Growth rate of Narrow Money

According to data which shown Comparison of narrow money since1990-91 and 2003-
04

1) Mt increase from 92,890 Crores to 5,76,650 Crores

Whatever money aggregate we take; there has been steady and continuous
increase in money and liquidity resources.

Now, with the more money and with the more liquidity resources in hand, the
will would definitely demand more of goods and services. If the supply of goods and
services does not increase proportionately, there is bound to be and upward pressure
on prices, we call this as inflationary pressure.
Since we know narrow money is the appropriate measure . It does not use the
term money for assets other than currency. In above chart we see that there
are certain important changes in their behaviour. During 1970- 1978 Indian
was not healthy which is due to continuously Decrease In percentage of
circulation of narrow money.

Conclusion

Trend line narrow money is upward sloped.

Broad money (M3) = Narrow money + Time Deposits of public

with banks

It is a measure of money multiplier. Money multiplier

shows the mechanism by which reserve money creates
money supply in the economy. It is again dependent on
two variables, namely currency deposit ratio and reserve
deposit ratio.

M3 is a measure of broad money and includes currency

with the public and deposits. The Reserve Money factor
shows the reserve money and includes required reserve
and the excess reserves of the banking system. If the
reserve requirement as stipulated by the RBI increases,
the Reserve Money value will increase and the multiplier
will fall. Similarly, if banks keep more money as excess
reserves, it will have an adverse effect on the money
multiplier.
narrow money Mi and money supply in broad terms (M3) is
the
treatment of time deposits with banks. Narrow money
excluded time deposits, as M3
is an income earning assets and as such is not liquid but in
spite of such earning
people have acquired them by converting cash into time
deposits with view to earn
interest income they acquired some liquidity and therefore
people have come to
consider time deposits also as liquid or monetary resource.
According to data that focus on
Time deposits of the
people with the banking system thus added together to get broad money (M3)

But RBI having leamt from the funds with non-banking financial company
which was to be extending of 3, 27,150 Crores by the end of March 1997 or over 50
per cent of the total time deposits with the organized banking system. Therefore it is
necessary that deposit of the general public Non-Banking Financial Companies
(NBFCS) should be included in M3 at the end of March 1998 public deposits with
NBFCS amounted to Rs. 23,820 Crores, in march 1990-00 decreased to 20,430
Crores, Rs. 19,430 at the end march 2000.

Table shows the figure 1990-01 - 20003-04 in which foreign exchange assets
of the banking sector setup increase by three times (1990-01 - 1997-98 the major
sources) foreign exchange assets increased to forty times (1990-91 - 2003-04 and that
amount from 10,580 Crores to 5,26,850 Crores).

Broad Money(M3)
Narrow money is the most liquid part of the money supply because the
demand deposits can be withdrawn anytime during the banking hours. Time
deposits on the other hand have a fixed maturity period and hence cannot be
withdrawn before expiry of this period. When we add the time despots into
the narrow money, we get the broad money, which is denoted by M3.

M3 = Narrow money + Time Deposits of public with banks

We note here that the Broad money does not include the interbank deposits
such as deposits of banks with RBI or other banks. At the same time, time
deposits of public with all banks including the cooperative banks are included
in the Broad Money.

Now, we understand that the major distinction between the M1 and M3 is

“Treatment of deposits with the banks”. If we go a little deep, the M3 is the
treatment of “Time Deposits” of the public, since demand deposits are
available against cheques and ATMs. When We add the Post Office Savings
money also into the M3, it becomes M4. Both M2 and M4 which include the
Post office Savings with narrow money and broad money respectively are now
a days irrelevant. Post Office savings was once a prominent figure when the
banks had not expanded in India as we see them today all around. The RBI
releases the data at times regarding the money supply in India and Post Office
Savings Deposits have not been updated frequently. There is NOT much
change in the money of people deposited with the Post office and RBI did not
care to update this money. Further, there was a time when the Reserve Bank
used broad money (M3) as the policy target. However, with the weakened
relationship between money, output and prices, it replaced M3 as a policy
target with a multiple indicators approach. RBI started using the Multiple
Indicator Approach since 1998.

Currently, Narrow Money (M1) and Broad Money (M3) are relevant indicators
of money supply in India. The RBI in all its policy documents, monthly Bulletins
and other documents shows these aggregates.

Growth Rate of Broad Money(M3)

Gr. Rate = (M3 of current year – M3 Of Base Year/M3 of Base Year)*100

 Growth in Broad Money Growth in Broad
Money
30.00 Linear (Growth in
Broad Money)
25.00

20.00

15.00

10.00

5.00

0.00

2010-11
1950-51
1953-54
1956-57
1959-60
1962-63
1965-66
1968-69
1971-72
1974-75
1977-78
1980-81
1983-84
1986-87
1989-90
1992-93
1995-96
1998-99
2001-02
2004-05
2007-08

2013-14
2016-17
-5.00

-10.00

-15.00

Analysis of broad money

Analysis of Broad money

Households acquire bank deposits in the model to self-insure against broad

liquidity risk. Households are exposed to liquidity shocks because consumption
in a period must be chosen before household income is realized, and
consumption must be paid for with income realized during the specific period.
As per given figure 3 we can observe growth in broad money from 1952 to
1955 was continuously rises because, after the independence the constituent
parts of broad money like to M1 and time deposit with commercial bank was
not developed. During that year very few commercial bank . Firstly, from 1955
to 1970 below the potential line. And 1970 to 81 above the potential line
(trend line). And further in the period of 1981 to 1996 it increases and
fluctuates over potential line. After the analysing of data of broad money
initially increasing due to developing of banking sector and other components
of broad money. But at last we find that growth rate of broad money decrease
from year 2014 to 2018 due to demonetisation.

Conclusion

Trend line of broad money is upward sloped.

Reserve Money (M0)

The other name of the Reserve Money is “High Powered Money” and also
“Monetary Base”. Reserve Money is all the Cash in the economy and denoted
by M0. This has the following components:

 Currency with the Public

 Other Deposits with the RBI
 Cash Reserves of the banks held with themselves
 Cash Reserves of the Banks held with RBI

Here we should know that Cash Reserves are also of two types viz. Required
Reserves (RR) and Excess Reserves (ER). RR are those reserves which the banks
are statutorily required to keep with the RBI. At present the Banks are required
to keep 4.25% CRR (Cash Reserve Ratio) of their total time and demand
liabilities. All reserves excess of RR are called Excess Reserves. ER are held with
the Banks while RR is held with RBI. Banks hold the ER to meet their currency
drains i.e. withdrawal of currency by depositors.

Growth rate of Reserve Money(RM)

Gr. Rate of RM = (RM of Current Year – RM Of base year /RM Of Base

Year)*100
40.00
Growth in reserve money
30.00

20.00 Growth in reserve money

10.00
Linear (Growth in reserve
0.00 money)
1950-51
1953-54
1956-57
1959-60
1962-63
1965-66
1968-69
1971-72
1974-75
1977-78
1980-81
1983-84
1986-87
1989-90
1992-93
1995-96
1998-99
2001-02
2004-05
2007-08
2010-11
2013-14
2016-17
-10.00

-20.00

Analysis of Reserve money

Now we will individually discuss about the Reserve money. RM is also referred
to in the literature on the subject as monetary base, primary money or
government money. As per given figure 1clearly reveals that there arecertain
noticeable changes in their behaviour. Currency with the public constitutes the
major share in RM. Though it has risen continuously at relatively high rate. The
relative share of reserve money declined year over year as per given figure.
Other deposits, with RBI constitute less than 1% of total RM. Its effect is stable
and more over its relative share in RM is so low that for practical purposes we
can even ignore it. During seventies, the Indian economy experienced serious
inflationary pressure, which can be attributed largely to enormous credit
expansion by the commercial banks. The monetary authority, with a view to
reduce the pressure of inflation, has 5 resorted to frequent changes in the cash
reserve ratio [CRR]. During 1970-71 to 1975-76, it was between 3 to 5 per cent
of total demand and time liabilities of commercial banks. From 1976 to 1980, it
remained at 6 per cent. Since July 1981 onwards, it has been raised from time
to time, so by 1984, the CRR went up to 9%. It was further raised to 10 and
then 11 per cent in 1987 and 1988 and finally touched 15% level by 1990. This
has resulted in higher share of bank deposits with RBI. As summuraize of given
data, Reserve money was 19,450 crore in 1980-81. It increased to 87,870 crore
in 2010-11. The annual growth of Reserve money since 1980 to 81 was ;
During 1981-91 16%

During 1991-2001 13%

During 2010-2011 19%

This annual growth of reserve money in India is indeed high, showing the
possibility of rapid deposit multiplication. But the interesting point is the
remarkable transformation in the factor driving reserve money growth.
Throughout 1990s, net RBI credit to the central government was the driving
force behind the expansion of money.

Conclusion

The trend line of growth rate of the reserve money is upward sloped and its
value varies from 5 to 15
MAJOR MONETARY POLICY RATES AND RESERVE REQUIREMENTS - BANK RATE, LAF
(REPO, REVERSE REPO & MSF) RATES, CRR & SLR

(Per cent per annum)

Fix Range LAF

Rates
Effective Bank Repo Reverse Cash Reserve Marginal Statutory
Date Rate Ratio Standing Liquidity
Date of Monetory
Facility Ratio
Policy Decision
01-08-
2018 6.75 6.50 6.25 - 6.75 -
06-06-
2018 6.50 6.25 6.00 - 6.50 -
14-10-
2017 - - - - - 19.5
02-08-
2017 6.25 6.00 5.75 - 6.25 -
24-06-
2017 - - - - - 20.00
06-04-
2017 6.50 - 6.00 - 6.50 -
07-01-
2017 - - - - - 20.50
04-10-
2016 6.75 6.25 5.75 - 6.75 -
01-10-
2016 - - - - - 20.75
09-07-
2016 - - - - - 21.00
05-04-
2016 7.00 6.50 6.00 - 7.00 -
02-04-
2016 - - - - - 21.25
29-09-
2015 7.75 6.75 5.75 - 7.75 -
27-06-
2015 - - - 4.00 - -
02-06-
2015 8.25 7.25 6.25 - 8.25 -
04-03-
2015 8.50 7.50 6.50 - 8.50 -
07-02-
2015 - - - - - 21.50
15-01-
2015 8.75 7.75 6.75 - 8.75 -
09-08-
2014 - - - - - 22.00
14-06-
2014 - - - - - 22.50
28-01-
2014 9.00 8.00 7.00 - 9.00 -
29-10-
2013 8.75 7.75 6.75 - 8.75 -
07-10-
2013 9.00 - - - 9.00 -
20-09-
2013 9.50 7.50 6.50 - 9.50 -
15-07-
2013 10.25 - - - 10.25 -
03-05-
2013 8.25 7.25 6.25 - 8.25 -
19-03-
2013 8.50 7.50 6.50 - 8.50 -
09-02-
2013 - - - 4.00 - -
29-01-
2013 8.75 7.75 6.75 - 8.75 -
03-11-
2012 - - - 4.25 - -
22-09-
2012 - - - 4.50 - -
11-08-
2012 - - - - - 23.00
17-04-
2012 9.00 8.00 7.00 - 9.00 -
10-03-
2012 - - - 4.75 - -
13-02-
2012 9.50 - - - - -
28-01-
2012 - - - 5.50 - -
25-10-
2011 - 8.50 7.50 - 9.50 -
16-09-
2011 - 8.25 7.25 - 9.25 -
26-07-
2011 - 8.00 7.00 - 9.00 -
16-06-
2011 - 7.50 6.50 - 8.50 -
03-05-
2011 - 7.25 6.25 - 8.25 -
17-03-
2011 - 6.75 5.75 - - -
25-01-
2011 - 6.50 5.50 - - -
18-12-
2010 - - - - - 24.00
02-11-
2010 - 6.25 5.25 - - -
16-09-
2010 - 6.00 5.00 - - -
27-07-
2010 - 5.75 4.50 - - -
02-07-
2010 - 5.50 4.00 - - -
24-04-
2010 - - - 6.00 - -
20-04-
2010 - 5.25 3.75 - - -
19-03-
2010 - 5.00 3.50 - - -
27-02-
2010 - - - 5.75 - -
13-02-
2010 - - - 5.50 - -
07-11-
2009 - - - - - 25.00
21-04-
2009 - 4.75 3.25 - - -
05-03-
2009 - 5.00 3.50 - - -
17-01-
2009 - - - 5.00 - -
05-01-
2009 - 5.50 4.00 - - -
08-12-
2008 - 6.50 5.00 - - -
08-11-
2008 - - - 5.50 - 24.00
03-11-
2008 - 7.50 - - - -
25-10-
2008 - - - 6.00 - -
20-10-
2008 - 8.00 - - - -
11-10-
2008 - - - 6.50 - -
30-08-
2008 - - - 9.00 - -
30-07-
2008 - 9.00 - - - -
19-07-
2008 - - - 8.75 - -
05-07-
2008 - - - 8.50 - -
25-06-
2008 - 8.50 - - - -
12-06-
2008 - 8.00 - - - -
24-05-
2008 - - - 8.25 - -
10-05-
2008 - - - 8.00 - -
26-04-
2008 - - - 7.75 - -
10-11-
2007 - - - 7.50 - -
04-08-
2007 - - - 7.00 - -
28-04-
2007 - - - 6.50 - -
14-04-
2007 - - - 6.25 - -
31-03-
2007 - 7.75 - - - -
03-03-
2007 - - - 6.00 - -
17-02-
2007 - - - 5.75 - -
31-01-
2007 - 7.50 - - - -
06-01-
2007 - - - 5.50 - -
23-12-
2006 - - - 5.25 - -
31-10-
2006 - 7.25 - - - -
25-07-
2006 - 7.00 6.00 - - -
08-06-
2006 - 6.75 5.75 - - -
24-01-
2006 - 6.50 5.50 - - -
26-10-
2005 - 6.25 5.25 - - -
29-04-
2005 - - 5.00 - - -
27-10-
2004 - - 4.75 - - -
02-10-
2004 - - - 5.00 - -
18-09-
2004 - - - 4.75 - -
14-06-
2004 - - - - - -
31-03-
2004 - 6.00 - - - -
25-08-
2003 - - 4.50 - - -
14-06-
2003 - - - 4.50 - -
29-04-
2003 6.00 - - - - -
19-03-
2003 - 7.00 - - - -
07-03-
2003 - 7.10 - - - -
03-03-
2003 - - 5.00 - - -
16-11-
2002 - - - 4.75 - -
12-11-
2002 - 7.50 - - - -
29-10-
2002 6.25 - 5.50 - - -
27-06-
2002 - - 5.75 - - -
01-06-
2002 - - - 5.00 - -
28-03-
2002 - 8.00 - - - -
05-03-
2002 - - 6.00 - - -
29-12-
2001 - - - 5.50 - -
03-11-
2001 - - - 5.75 - -
23-10-
2001 6.50 - - - - -
07-06-
2001 - 8.50 - - - -
28-05-
2001 - - 6.50 - - -
19-05-
2001 - - - 7.50 - -
30-04-
2001 - 8.75 - - - -
27-04-
2001 - 9.00 6.75 - - -
10-03-
2001 - - - 8.00 - -
02-03-
2001 7.00 - - - - -
24-02-
2001 - - - 8.25 - -
17-02-
2001 7.50 - - - - -
12-08-
2000 - - - 8.50 - -
29-07-
2000 - - - 8.25 - -
22-07-
2000 8.00 - - - - -
22-04-
2000 - - - 8.00 - -
08-04-
2000 - - - 8.50 - -
02-04-
2000 7.00 - - - - -
20-11-
1999 - - - 9.00 - -
06-11-
1999 - - - 9.50 - -
08-05-
1999 - - - 10.00 - -
13-03-
1999 - - - 10.50 - -
02-03-
1999 8.00 - - - - -
29-08-
1998 - - - 11.00 - -
29-04-
1998 9.00 - - - - -
11-04-
1998 - - - 10.00 - -
03-04-
1998 10.00 - - - - -
28-03-
1998 - - - 10.25 - -
19-03-
1998 10.50 - - - - -
17-01-
1998 11.00 - - 10.50 - -
06-12-
1997 - - - 10.00 - -
22-11-
1997 - - - 9.50 - -
25-10-
1997 - - - 9.75 - 25.00
22-10-
1997 9.00 - - - - -
26-06-
1997 10.00 - - - - -
16-04-
1997 11.00 - - - - -
18-01-
1997 - - - 10.00 - -
04-01-
1997 - - - 10.50 - -
09-11-
1996 - - - 11.00 - -
26-10-
1996 - - - 11.50 - -
06-07-
1996 - - - 12.00 - -
11-05-
1996 - - - 13.00 - -
27-04-
1996 - - - 13.50 - -
09-12-
1995 - - - 14.00 - -
11-11-
1995 - - - 14.50 - -
29-10-
1994 - - - - - 31.50
17-09-
1994 - - - - - 33.75
20-08-
1994 - - - - - 34.25
06-08-
1994 - - - 15.00 - -
09-07-
1994 - - - 14.75 - -
11-06-
1994 - - - 14.50 - -
16-10-
1993 - - - - - 34.75
18-09-
1993 - - - - - 37.25
21-08-
1993 - - - - - 37.50
15-05-
1993 - - - 14.00 - -
17-04-
1993 - - - 14.50 - -
06-03-
1993 - - - - - 37.75
06-02-
1993 - - - - - 38.00
09-01-
1993 - - - - - 38.25
09-10-
1991 12.00 - - - - -
04-07-
1991 11.00 - - - - -
22-09-
1990 - - - - - 38.50
01-07-
1989 - - - 15.00 - -
30-07-
1988 - - - 11.00 - -
02-07-
1988 - - - 10.50 - -
02-01-
1988 - - - - - 38.00
24-10-
1987 - - - 10.00 - -
25-04-
1987 - - - - - 37.50
28-02-
1987 - - - 9.50 - -
06-07-
1985 - - - - - 37.00
08-06-
1985 - - - - - 36.50
01-09-
1984 - - - - - 36.00
28-07-
1984 - - - - - 35.50
04-02-
1984 - - - 9.00 - -
27-08-
1983 - - - 8.50 - -
29-07-
1983 - - - 8.00 - -
27-05-
1983 - - - 7.50 - -
11-06-
1982 - - - 7.00 - -
09-04-
1982 - - - 7.25 - -
29-01-
1982 - - - 7.75 - -
25-12-
1981 - - - 7.50 - -
27-11-
1981 - - - 7.25 - -
30-10-
1981 - - - - - 35.00
25-09-
1981 - - - - - 34.50
21-08-
1981 - - - 7.00 - -
31-07-
1981 - - - 6.50 - -
12-07-
1981 10.00 - - - - -
01-12-
1978 - - - - - 34.00
13-11-
1976 - - - 6.00 - -
04-09-
1976 - - - 5.00 - -
28-12-
1974 - - - 4.00 - -
14-12-
1974 - - - 4.50 - -
23-07-
1974 9.00 - - - - -
01-07-
1974 - - - 5.00 - 33.00
08-12-
1973 - - - - - 32.00
22-09-
1973 - - - 7.00 - -
08-09-
1973 - - - 6.00 - -
29-06-
1973 - - - 5.00 - -
31-05-
1973 7.00 - - - - -
17-11-
1972 - - - - - 30.00
04-08-
1972 - - - - - 29.00
09-01-
1971 6.00 - - - - -
28-08-
1970 - - - - - 28.00
24-04-
1970 - - - - - 27.00
05-02-
1970 - - - - - 26.00
02-03-
1968 5.00 - - - - -
17-02-
1965 6.00 - - - - -
26-09-
1964 5.00 - - - - -
16-09-
1964 - - - - - 25.00
03-01-
1963 4.50 - - - - -
16-09-
1962 - - - 3.00 % of NDTL - -
11-11- (a) 5% of DL, (b)
1960 - - - 2% of TL - -
06-05- (a) 5% of DL, (b)
1960 - - - 2% of TL - -
06-03- (a) 5% of DL, (b)
1960 - - - 2% of TL - -
16-05-
1957 4.00 - - - - -
15-11-
1951 3.50 - - - - -
16-03-
1949 - - - - - 20.00
28-11-
1935 3.00 - - - - -
05-07- (a) 5% of DL, (b)
1935 3.50 - - 2% of TL - -
 Analysis of Table 2
RBI controls money supply in the market through various tools
and measures.

Cash reserve ratio- THE CRR IS AN EFFECTIVE INSTRUMENT OF CREDIT

CONTROL . IT refers to the cash which bank have to maintain with the RBI as
a certain percentage of their demand and the time liabilities under the RBI
Act 1962 the RBI is empowered to determine CRR for the commercial bank in
the range of 3 per cent to 15 per cent for the aggregate demand and time
liabilities.

A high CRR implies less money to lend, thus contraction in money supply and A
high CRR implies less money to lend, thus contraction in money supply.

 CRR - Cash Reserve Ratio is the proportion of total deposits that the
banks are required to maintain with the RBI has reserves. By
changing this ratio RBI can influence the amount of cash that is
available for the banks to lend. A high CRR implies less money to
lend, thus contraction in money supply. A high CRR implies less
money to lend, thus contraction in money supply. Thus, expanding
the money supply.

Analysis
According to data the highest cash reserve Ratio (CRR) is 11 % in 29
April, 1998. The lowest value of CRR is 2% in 1935.
 Open Market Operation - It is the sale/purchase of the government
bonds and securities in the market to adjust the rupee liquidity. For
example, when RBI sells government bonds/securities, people buy
them against money (say cash) this leads to a contraction in money
supply as money moves from public to RBI. In case of purchases,
money supply expands.

 Repo Rate - It is the rate at which the central bank (RBI) lends
money to commercial banks. If RBI increases this repo rate, it
becomes costlier for the commercial banks to borrow money from
RBI. They are left with lesser amount of money to lend to the
general public. Thus the money supply contracts. A low repo rate
helps commercial bank avail loans at cheaper prices, thus expanding
the money supply.

 Statutory Liquidity Ratio - The percentage of total deposits that

have to be present as liquid cash within the banks. If the banks fail
to maintain this, there would be a penalty on them.

 Bank Rate - When banks want to borrow long term funds from RBI,
it is the interest rate which RBI charges from them. Current Bank
rate is 7% w e f from June 2016. The bank rate is not used to control
money supply these days although it provides the basis of arriving at
lending and deposit rates. However, if a bank fails to keep SLR or
CRR then RBI will impose penalty & it will be 300 basis points above
bank rate.

Analysis
Bank Rate was 3.50% in July 5,1935 and reduced to 3 % in
28/11/1935. This reduction entails to increase in money Supply.
Again Bank rate change takes place in 15/07/1951. It was then
3.5%. Highest bank rate was 12% in the year 1991 and remain same
for long period
35.00 Growth Rate of Reserve Money ,narrow money
Growth in reserve money
30.00
25.00 Growth in narrow money
20.00
15.00 Growth in Broad Money
10.00
Linear (Growth in reserve
5.00
money)
0.00
Linear (Growth in narrow
-5.00

1983-84
1950-51
1953-54
1956-57
1959-60
1962-63
1965-66
1968-69
1971-72
1974-75
1977-78
1980-81

1986-87
1989-90
1992-93
1995-96
1998-99
2001-02
2004-05
2007-08
2010-11
2013-14
2016-17
money)
-10.00 Linear (Growth in Broad
-15.00 Money)

-20.00