Monetary Policy Management and its Effectiveness with Special Reference to India

The basic objectives of monetary policy namely price stability and output stabilization which ensure credit flow to support growth, have remained unchanged in India. In the late 1990’s, in view of ongoing financial openness and changes in transmission mechanism with interest rate and exchange rate, the RBI has adopted various innovative indicators for policy prospective. The liquidity management (LM) system was carried out through open market operation and daily repo and reverse repo and repo operations under liquidity adjustment facilities (LAF). This LAF has emerged as the main instrument for interest rate signaling in the Indian Economy. Some of the important factors that changed in the monetary policy framework and operating procedure in India during the 1990’s were the delinking of the budget deficit from its automatic monetization by the Reserve Bank of India, deregulation of the interest rate, and development of the financial market with reduced segmentation through better linkage and development of appropriate trading, payment and settlement system along with technology infrastructure. This paper study and examine the “monetary policy management and its effectiveness with special reference to India”.