MONETARY POLICY OF INDIA &ITS TRANSMISSION

Abstract

This paper deals with various studies conducted on the monetary policy of India and by extension to a lot of other emerging economies. The study uses secondary data. Qualitative analysis is done on the Secondary data. The paper talks about the various phases in the formulation of the policy, its transition from one phase to another. It also looks at the various linkages between policy rates and economic activity. Importantly, it deals with the various mechanisms used to transmit this monetary policy vis-à-vis credit channel, interest rate channel, exchange rate channel etc. Usually, the monetary policy followed by emerging economies has been pro cyclical as opposed to the counter cyclical one followed by the developed nations. However, now it has been seen that this difference is reducing over the years with the maximum effect being observed during the financial crisis of 2008. Monetary policy stand of developed and developing nations during the financial crisis of 2008 has also been studied in this paper. It is interesting to note that in the current scenario of global slowdown, India has managed to lead the growth rate race. Credit is being given to RBI’s timely enforced and appropriate policies as well as current government’s new initiatives. Hence, it becomes important to understand the rationale behind the implemented policies. This paper also makes an attempt to study and understand the rationale. This paper then talks about how varying intensity in enforcing monetary policies bring differences in the financial systems of developing nations compared to the developed ones and the consequences of that.