RBI’s POLICY RATES

RBI’s POLICY RATES

TOPIC: Economy

Context- Signalling that the country is not yet ready for a monetary tightening or a hike in interest rates, the six-member Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) on Thursday kept key policy rates – Repo rate, Reverse repo rate and the Bank rate unchanged for the 10th time in a row, and retained the accommodative policy stance.

Concept-

• Repo rate is the rate at which the central bank of a country (RBI 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.
• Bank Rate: It is the rate charged by the RBI for lending funds to commercial banks.
• Marginal Standing Facility (MSF): MSF is a window for scheduled banks to borrow overnight from the RBI in an emergency situation when interbank liquidity dries up completely.

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.
• 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%).