Limitations Rbi’S Monetary Policy - India Coin Management

Obstacles In Implementation of Monetary Policy ↓

Through the monetary policy is useful inwards attaining many goals of economical policy, it is non gratis from sure enough limitations. Its range is express past times sure enough peculiarities, inwards developing countries such every bit India. Some of the of import limitations of the monetary policy are given below.

1. There be a Non-Monetized Sector

In many developing countries, at that topographic point is an being of non-monetized economic scheme inwards large extent. People alive inwards rural areas where many of the transactions are of the barter type together with non monetary type. Similarly, due to non-monetized sector the progress of commercial banks is non upward to the mark. This creates a major bottleneck inwards the implementation of the monetary policy.

2. Excess Non-Banking Financial Institutions (NBFI)

As the economic scheme launch itself into a higher orbit of economical growth together with development, the financial sector comes upward alongside swell speed. As a final result many Non-Banking Financial Institutions (NBFIs) come upward up. These NBFIs too furnish credit inwards the economy. However, the NBFIs create non come upward nether the purview of a monetary policy together with so nullify the number of a monetary policy.

3. Existence of Unorganized Financial Markets

The financial markets help inwards implementing the monetary policy. In many developing countries the financial markets peculiarly the coin markets are of an unorganized nature together with inwards backward conditions. In many places people similar coin lenders, traders, together with human being of affairs actively create got purpose inwards coin lending. But unfortunately they create non come upward nether the purview of a monetary policy together with creates hurdle inwards the success of a monetary policy.

4. Higher Liquidity Hinders Monetary Policy

In speedily growing economic scheme the deposit base of operations of many commercial banks is expanded. This creates excess liquidity inwards the system. Under this circumstances fifty-fifty if the monetary policy increases the CRR or SLR, it dose non deter commercial banks from credit creation. So the being of excess liquidity due to high deposit base of operations is a hindrance inwards the agency of successful monetary policy.

5. Money Not Appearing inwards an Economy

Large per centum of coin never come upward inwards the mainstream economy. Rich people, traders, businessmen together with other people prefer to pass rather than to deposit coin inwards the bank. This shadow coin is used for buying precious metals similar gold, silver, ornaments, province together with inwards speculation. This type of lavish spending give rising to inflationary tendency inwards mainstream economic scheme together with the monetary policy fails to command it.

6. Time Lag Affects Success of Monetary Policy

The success of the monetary policy depends on timely implementation of it. However, inwards many cases unnecessary delay is flora inwards implementation of the monetary policy. Or many times timely directives are non issued past times the key bank, together with so the affect of the monetary policy is wiped out.

7. Monetary & Fiscal Policy Lacks Coordination

In lodge to accomplish a maximum of the higher upward objectives it is unnecessary that both the financial together with monetary policies should larn manus inwards hand. As both these policies are prepared together with implemented past times ii dissimilar authorities, at that topographic point is a possibility of non-coordination betwixt these ii policies. This tin impairment the involvement of the overall economical policy.

These are major obstacles inwards implementation of monetary policy. If these factors are controlled or kept inside limit, together with so the monetary policy tin give expected results. Thus though the monetary policy suffers from these limitations, nonetheless it has an immense significance inwards influencing the procedure of economical growth together with development.