{"id":32547,"date":"2015-06-04T15:44:03","date_gmt":"2015-06-04T15:44:03","guid":{"rendered":"http:\/\/vskills.in\/certification\/blog\/?p=32547"},"modified":"2024-04-03T13:17:40","modified_gmt":"2024-04-03T07:47:40","slug":"why-rbi-cannot-control-money-supply-precisely","status":"publish","type":"post","link":"https:\/\/www.vskills.in\/certification\/blog\/why-rbi-cannot-control-money-supply-precisely\/","title":{"rendered":"Why RBI cannot control money supply precisely?"},"content":{"rendered":"<p style=\"text-align: center;\"><a ref=\"magnificPopup\" href=\"http:\/\/vskills.in\/certification\/blog\/wp-content\/uploads\/2015\/06\/Why-RBI-cannot-control-money-supply-precisely.jpg\"><img loading=\"lazy\" decoding=\"async\" class=\"alignnone size-full wp-image-32786\" src=\"http:\/\/vskills.in\/certification\/blog\/wp-content\/uploads\/2015\/06\/Why-RBI-cannot-control-money-supply-precisely.jpg\" alt=\"Why RBI cannot control money supply precisely\" width=\"288\" height=\"175\" \/><\/a><\/p>\n<p>RBI can use its three instruments to control money supply (Monetary policy)i.e open market operations(by borrowing and selling bonds), the discount rate (the rate at which bonds are buy and sell),changes in reserve requirements (which is maintained by commercial banks) then why its control imprecise ?<br \/>\nBecause of these reasons ;<br \/>\n1. Multiple definition of money &#8211; There are many types of financial assets included in M2 that are not included in M1 .Both saving deposits and time deposits are included in M2 but excluded from M1 . An increase in the attractiveness of these deposits relative to transactions accounts ,for eg would raise the level of M2 relative to M1 .In this case RBI would not be able to precisely control M1 and M2 simultaneously.<\/p>\n<p>2. Firms and households choose the amount of currency : RBI controls two elements in the money supply ,highpowered money and the reserve ratio .It does not control the ratio of currency to deposits ,which is controlled by firms and households.If the RBI cannot predict precisely when the ratio of currency to deposits will change ,it cannot precisely control the money supply.<\/p>\n<p>3.Other factors : In money supply equation it does not take into account that transaction accounts have reserve requirements while other accounts do not.And since money market mutual funds are not actually deposits ,they are also free from reserve requirements .A consequence of these differing reserve requirement ratios is that shift to funds across accounts will change the average reserve ratio.<\/p>\n<p><a href=\"http:\/\/www.vskills.in\/certification\/certifications\">Click here for government certifications<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"<p>RBI can use its three instruments to control money supply (Monetary policy)i.e open market operations(by borrowing and selling bonds), the discount rate (the rate at which bonds are buy and sell),changes in reserve requirements (which is maintained by commercial banks) then why its control imprecise ? Because of these reasons ; 1. Multiple definition of&#8230;<\/p>\n","protected":false},"author":398,"featured_media":32786,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_joinchat":[],"footnotes":""},"categories":[1560],"tags":[2647,1739,1353],"class_list":["post-32547","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-arbit","tag-currency","tag-money-supply","tag-rbi"],"acf":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v22.3 - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>Why RBI cannot control money supply precisely? - Vskills Blog<\/title>\n<meta name=\"description\" content=\"Why RBI cannot control money supply precisely? Apply for a vskills certification now. 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