By | June 20, 2017

Interest rates & Money Supply as Important indicators of Monetary Policy,Financial Institution as Transmission Channels,Global Crisis effects on financial sector,Monetary Policy Stance,

2001-03 as Expansionary Monetary Policy, Real GDP growth rate of 8%. Rising inflation became source of concern.2004-08 as Contractionary Monetary Policy period, purpose was to strike balance between growth, curtailing inflation & maintaining stable exchange rate.2008-09 as slight reversal of Tight MP by decreasing CRR by 2%  & hike in Discount Rate to 15%, due to a decline in inflationary pressure a decline in Discount rate and still at present in FY’10 a further decline to 13%.Commodity & Budgetary Borrowing decline to Rs 458 Billion  during July-May 2008-09.Government Financing sources have been scheduled banks & non bank institutions, besides World Bank’s $500 M receipts.Scheduled Banks showed great interest in lending to PSE as there has been an increase in NPL’s. PSE’s credit was Rs138.4 B & Government credit was Rs119.8 B.

(ii) Net Foreign Assets:

Improved by Rs130 B in May’09.Improvement sources World Bank, Bank Of China, Remittances, FC loan Retirement, Oil Price Reduction. Deceleration is due to lower growth of M2 of 4.59%(key economic indicator used to forecast inflation).NFA stood at $ 3.98 B higher than $2.37B as expected as in June’09.Decline of 11% during July-May 2008-09 & stood at Rs 57.1M mainly due to decline of credit disbursement to private sector.NDA’s stood at Rs1183 B during end-June 2009.Credit Decline Offset by Banks Investment in Government Securities & PSE loans.Private Sector Credit grew by 0.8% as compare to 16.5% last year as there was low growth in working capital , deteriorating credit quality, recovery delays, rising risk in stocks & real estate.78% of loans disbursed were at 12% & above.Banks participation in T-Bills auction increased.

Money is anything that is generally accepted as payment for goods and services and repayment of debts,The main functions of money are distinguished as: a medium of exchange; a unit of account; a store of value; and, occasionally, a standard of deferred payment.Money originated as commodity money, but nearly all contemporary money systems are based on fiat money.Fiat money is without intrinsic use value as a physical commodity, and 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”. The money supply of a country consists of currency (banknotes and coins) and demand deposits or ‘bank money’ (the balance held in checking accounts and savings accounts). These demand deposits usually account for a much larger part of the money supply than currency.Bank money is intangible and exists only in the form of various bank records. Despite being intangible, bank money still performs the basic functions of money, being generally accepted as a form of payment.

One Reply to “Money and credit”

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