M3 Money Supply India 2025 Calendar Forecast

Policymakers must balance liquidity with inflation control to maintain economic stability, while sectoral dynamics and global uncertainties pose ongoing challenges. An increasing year-over-year percentage change in M3 indicates a growing money supply, which can be a sign of economic expansion, increased lending and borrowing activities, and potentially rising inflation. Conversely, a decrease can suggest tighter monetary conditions, possibly due to restrictive monetary policy or reduced economic activity. A substantial part of India’s economy still operates on cash transactions; hence, the money supply data can provide insights into economic liquidity and potential inflationary pressures. M3 is a comprehensive measure that includes M1 (physical currency and demand deposits) and M2 (M1 plus savings deposits, small time deposits, and money market funds), plus time deposits, institutional money market funds, and other larger liquid assets.

• India’s Money Supply M3 encompasses M2 in addition to long-term time deposits held within banks.
• Commercial banks may now lend these sums because of the multiplier effect of fractional-reserve banking, which causes the value of bank deposits and loans to rise many times over the initial investment.
• So in essence, money paid in taxes paid to the Federal Government (Treasury) is excluded from the money supply.
• For this purpose, cash on hand and balances in Federal Reserve (“Fed”) accounts are interchangeable (both are obligations of the Fed).
• The threshold values ​​of the indicators signaling the approach of the critical state of the national (local) economy occupy a special place.

Reserves may come from any source, including the federal funds market, deposits by the public, and borrowing from the Fed itself. A bank can issue a Hong Kong dollar only if it has the equivalent exchange in US dollars on deposit. The currency board system ensures that Hong Kong’s entire monetary base is backed with US dollars at the linked exchange rate.

Monetary aggregates or money aggregates refer to various categories of money that circulate within an economy. These measures help in quantifying the total amount of money available for spending, investment, and other economic activities. They are essential indicators for central banks, policymakers, economists, and financial analysts as they provide insights into the liquidity and overall health of an economy’s financial system. Monetary aggregates consist of different forms of money, ranging from physical currency to various types of deposits held by individuals, businesses, and banks.

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In India, the RBI influences money supply available to the public through the requirements placed on banks to hold reserves, how to extend credit and other regulations. Economists analyze the money supply and develop policies revolving around it through controlling interest rates and increasing or decreasing the amount of money flowing in the economy. Public and private sector analysis is performed because of the money supply’s possible impacts on price level, inflation, and the business cycle. Although the Treasury can and does hold cash and a special deposit account at the Fed (TGA account), these assets do not count in any of the aggregates.

Instead central banks generally switched to steering interest rates directly, allowing money supply to fluctuate to accommodate fluctuations in money demand. Concurrently, most central banks in developed countries implemented direct inflation targeting as the foundation of their monetary policy, which leaves little room for a special emphasis on the money supply. In the United States, the strategy of targeting the money supply was tried under Federal Reserve chairman Paul Volcker from 1979, but was found to be impractical and later given up. According to Benjamin Friedman, the number of central banks that actively seek to influence money supply as an element of their monetary policy is shrinking to zero. Even for narrow aggregates like M1, by far the largest part of the money supply consists of deposits in commercial banks, whereas currency (banknotes and coins) issued by central banks only makes up a small part of the total money supply in modern economies. The public’s demand for currency and bank deposits and commercial banks’ supply of loans are consequently important determinants of money supply changes.

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This is a short-hand simplification which disregards several other factors determining commercial banks’ reserve-to-deposit ratios and the public’s money demand.