The various objectives of Credit Policy are as follows:
(i) Maintenance of Price Stability – One of the foremost responsibilities of RBI is to control inflation and maintain the stability of prices.
(ii) Achieving Economic Growth – It is also one of the most important objectives of Credit Policy of RBI. The purpose is to achieve economic growth through various means which will be discussed later. Infact, the primary objective is to maintain a judicious balance between maintenance of price stability and achieving economic growth. So, achieving economic growth is not a direct objective. GDP growth and job creation is primarily the government function. Credit policy is primarily targeted to keep inflation in check and maintain sufficient liquidity in the system which will spur demand. This will lead to economic growth.
(iii) Exchange Rate Stability –The aim is to maintain exchange rate stability so the import is cheaper and exporters increase their export and earn precious foreign exchange.
(iv) External Balance of payment equilibrium – The balance of payment is basically economic transactions of the residents of a country with the rest of the world during a given period of time.When we add up all the demand for foreign currency and all the sources from which it comes, these two amounts are necessarily equal and thus the overall account of the balance of payments necessarily balance or must always be in equilibrium.
(v) Adequate flow of credit to productive sectors – It is the responsibility of the Central Bank to ensure that regular, easy and smooth availability of money to the needy sector of the economy is rendered on a continuous basis. This will help the industry to pump in the required money to boost up their production. This will automatically increase employment as the companies will hire more people to enhance their capacity. This in turn will lead to higher standard of living for the people.
(vi) Maintaining a moderate structure of interest rates to enhance investments –The RBI plays an important role in management of rate of interest. And, the fate of many industries depends upon the interest rate policy pursued by the Central Bank. They expect that interest rates be reduced so that loans can be available at cheaper rate. On the other hand, in case of inflation, general perception is to increase the rate of interest. Therefore, the RBI evaluates the pros and cons of its every prospective decision and decides interest rate policy to be pursued.
Hence, the role of RBI is to tread on a cautious path. People expect that inflation shall be contained and stay within a reasonable limit so that goods and services are available to them in a cheap manner. At the same time, people expect that unemployment should be reduced and more and more jobs should be available. So, tradeoff is required between controlling inflation and rising unemployment.
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