Page 49 - DMGT512_FINANCIAL_INSTITUTIONS_AND_SERVICES

Financial Institutions and Services

Notes Apart from these two role plays, RBI being the central monetary authority plays a very significant
role in the Indian Economy.

Guarantor of Price Stability

Being the monetary authority of the economy, RBI is responsible for implementing, formulating
and monitoring the monetary policy of India. Keeping this authority in mind the RBI is required
to maintain price stability and ensure adequate flow of credit to productive sectors.

Regulator and Supervisor of the Financial System

The Supreme financial body sets down broad parameters of banking operations within which
the country's banking and financial system operates. This reasonably helps in maintaining
public confidence in the system. It in turn protects depositors' interest and provides lucrative
banking services to the public.

Manager of Exchange Control

The RBI is responsible for managing the Foreign Exchange Management Act, 1999. It is the
nodal agency which facilitates external trade and payment and promotes orderly development
and maintenance of foreign exchange market in India.
Issuer of Currency

It is the only supreme body which issues and exchanges or destroys currency and coins not fit for
circulation. This facilitates in giving the public adequate quantity of currency notes and coins
and in good quality.

Developmental Role

The RBI since its inception performs a wide range of promotional functions to support national
objectives and generate goodwill among the citizens of the country.

Caselet CRR Hike Slightly Aggressive: Economists

conomists were "slightly surprised" by the extent of the cash reserve ratio (CRR)
hike (of 0.75 per cent) but felt that the Reserve Bank's move was strongly influenced
Eby rising inflationary pressures and the compelling need to rein them in.
"The market was expecting a 0.50 per cent hike in CRR and I feel the 0.75 per cent is slightly
aggressive. It is more a pre emptive move to control inflationary expectations," Bank of
Baroda's Chief Economist, Rupa Rege Nitsure, told PTI here.

The Reserve Bank today upped the cash reserve ratio from 5 per cent to 5.75 per cent, a
move expected to flush out 36,000 crores from the system. It also pegged expected
inflation by March end at 8.5 per cent, sharply up from its earlier projection of 6.5 per cent.
"The move is targeted at combating the liquidity over hang in the system," Nitsure said.
Crisil's Director and Principal Economist, D K Joshi, said, "today's move is a clear
enunciation that inflation has emerged as a major concern for the RBI. This is clear from
Contd...

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