RBI MAY KEEP REPO RATE UNCHANGED

Subject: Economics

Context: RBI likely to keep repo rate unchanged at monetary policy meet next week.

Concept:

The RBI had kept key interest rates unchanged after the last the MPC meeting held in April.
The key lending rate, the repo rate, was kept at 4 per cent and the reverse repo rate or the central bank’s borrowing rate at 3.35 per cent.

Repo and Reverse Repo Rate:

Repo rate is the rate at which the central bank of a country (Reserve Bank of India in case of India) lends money to commercial banks in the event of any shortfall of funds. Here, the central bank purchases the security.
Reverse repo rate is the rate at which the RBI borrows money from commercial banks within the country.

Liquidity Adjustment Facility (LAF):

It is a tool used in monetary policy by the RBI, that allows banks to borrow money through repurchase agreements (repos) or for banks to make loans to the RBI through reverse repo agreements.

Monetary Policy Committee

The Monetary Policy Committee is a statutory and institutionalized framework under the Reserve Bank of India Act, 1934, for maintaining price stability, while keeping in mind the objective of growth.
An RBI-appointed committee led by the then deputy governor Urjit Patel in 2014 recommended the establishment of the Monetary Policy Committee.
The Governor of RBI is ex-officio Chairman of the committee.
The committee comprises six members (including the Chairman) – three officials of the RBI and three external members nominated by the Government of India.
Decisions are taken by majority with the Governor having the casting vote in case of a tie.
The MPC determines the policy interest rate (repo rate) required to achieve the inflation target (4%).