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RBI Monetary Policy Update

Context:

The Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) decided to keep the policy repo rate under the liquidity adjustment facility (LAF) unchanged.

Relevance:

GS III: Indian Economy

Dimensions of the Article:

  1. Key Details
  2. About Monetary Policy Committee (MPC)

Key Details:

Repo Rate:

  • The repo rate is now set at 6.50 percent.
  • It represents the rate at which the Reserve Bank of India lends money to commercial banks in case of a shortage of funds.

Standing Deposit Facility (SDF):

  • The SDF rate stands at 6.25 percent.
  • SDF is a liquidity window provided by the RBI for banks to park excess liquidity without the need for collateral.

Marginal Standing Facility (MSF) Rate:

  • The MSF rate is set at 6.75 percent.
  • MSF serves as a borrowing window for banks from the central bank during situations when inter-bank liquidity is completely depleted.

Bank Rate:

  • The Bank Rate is currently at 6.75 percent.
  • It is the rate at which the central bank lends funds to commercial banks.
  • It is important to note that while the Repo Rate and Bank Rate are different, as the Repo Rate is for short-term borrowing against securities, the Bank Rate is the rate charged for lending funds to commercial banks.

About Monetary Policy Committee (MPC)

  • The Monetary Policy Committee (MPC) is the body of the RBI, headed by the Governor, responsible for taking the important monetary policy decisions about setting the repo rate.
  • Repo rate is ‘the policy instrument’ in monetary policy that helps to realize the set inflation target by the RBI (at present 4%).
Membership of the MPC
  • The Monetary Policy Committee (MPC) is formed under the RBI with six members.
  • Three of the members are from the RBI while the other three members are appointed by the government.
  • Members from the RBI are the Governor who is the chairman of the MPC, a Deputy Governor and one officer of the RBI.
  • The government members are appointed by the Centre on the recommendations of a search-cum-selection committee which is to be headed by the Cabinet Secretary.
Objectives of the MPC

Monetary Policy was implemented with an initiative to provide reasonable price stability, high employment, and a faster economic growth rate.

The major four objectives of the Monetary Policy are mentioned below:

  • To stabilize the business cycle.
  • To provide reasonable price stability.
  • To provide faster economic growth.
  • Exchange Rate Stability.

-Source: Indian Express


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