What’s monetary policy?
Monetary and credit policy is the policy statement, traditionally bi-annual, through which the RBI targets a key
set of indicators to ensure price stability in the economy. These factors include:

a) Money supply, commonly referred to as M3 — which indicates the stock of legal currency in the economy

b) Interest rates

c) Inflation

Besides, the RBI gets a platform to announce norms for financial bodies such as banks, financial institutions,
NBFCs, nidhis, primary dealers in the money markets and foreign exchange market dealers. It also gets an an
opportunity to spell out its overview on the economy, and an occasion for it to indicate deposit and advance
targets for banks in the half-year.

How frequently is the monetary policy announced?
Historically, the monetary policy has been announced twice a year — one for the slack season (April-
September) and one for the busy season (October-March). However, with the share of credit to agriculture
coming down, the share of non-food credit in total credit has gone up. Since non-food credit is not seasonal,
the RBI, in 1998-99, experimented with one policy announcement in April followed by a review in October.
Now, the RBI has decided that the policy will be an annual affair.

How does the monetary policy impact me as an individual?
Till recently, the policy included an announcement on interest rates. The interest costs of banks would
immediately either increase or decrease. A reduction in interest rates would prompt banks to lower their
lending and borrowing rates. So if you want to have a deposit with a bank or take a loan, it would offer you a
lower interest rate. On the other hand, if there were to be an increase in interest rates, banks would
immediately increase their lending and borrowing rates.

How does the monetary policy affect the domestic industry and exporters in
particular?
Exporters keenly look forward to the monetary policy since the central bank always makes an announcement
on export refinance, or the rate at which the RBI will lend to banks, which have advanced pre-shipment credit
to exporters. A lowering of these rates would mean lower borrowing costs for the exporter. The most important
issue that the monetary policy has addressed till now has been that of interest rates. And since the interest
rates affect the borrowing costs of corporates and as a result, their bottomlines, the monetary policy is very
important to them.