InvestorQ : What is credit policy and why is it essential for investors to understand the impact?
Rutuja Nigam made post

What is credit policy and why is it essential for investors to understand the impact?

Answer
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Arti Chavan answered.
1 year ago


The credit policy or monetary policy is announced by the RBI every two months. Till 2016, the monetary policy was announced by the RBI itself. However, post 2016 the credit policy is announced by the Monetary Policy Committee (MPC) which consists of representatives from the Finance Ministry and the Reserve Bank of India. The purpose of the policy is to give a picture about the inflation in the economy, the likely path of interest rates and the liquidity in the system. Additionally, the policy also reviews the global economy and gives hints on how the Indian economy could perform in the near future. But the most important role of the credit policy or the monetary policy is all about giving direction on interest rates and liquidity in the economy.

The interesting part of credit policy is that it impacts each and every person, either directly or indirectly. Take the case of a middle-aged drilling engineer in an MNC who wants to understand how the monetary policy will actually impact him. As an engineer, he has a perfect understanding about the mechanics of drilling but is hardly aware of economics. He has however created a small portfolio of equities, bonds and mutual funds based on advice from his broker and his friends. But he is now keen to understand how the monetary policy will impact his portfolio and his personal finances. Whether you have a portfolio or not, the impact of monetary policy will still be there.