The Reserve Bank of India( RBI), in its first bi-monthly monetary policy statement, left the short-term lending rates, or repo rate, unchanged at 8 per cent and the cash reserve ratio static at 4 per cent. Hence, the MSF rate (100 bps above repo rate) and Bank Rate also stands unchanged at 9% and the reverse repo under liquidity adjustment facility(LAF) also remains unchanged at 7%. It also increase the liquidity provided under 7-day and 14-day term repos to 0.75% of NDTL of the banking system from the previous level of 0.5% of NDTL and decreased the liquidity provided under the overnight repos under the LAF to 0.25% of NDTL from the previous level of 0.5% of NDTL with immediate effect.  RBI left benchmark rates untouched citing fears of inflation and worries about a deficient monsoon this year due to the El Nino effect.

.The RBI projected a higher economic growth rate of 5.5 per cent in current financial year with easing of supply bottlenecks and implementation of stalled projects. The central bank also announced relief for consumers asking banks not to levy penal charges for non-maintenance of minimum balance in ordinary savings bank account and inoperative accounts. It instead asked banks to curtail the services accorded to those accounts until the balance is restored. Some of the recommendation under the Dr. Urjit Patel led committee have also been implemented including:  Adopting new CPI measure as the key measure of inflation; Recognizing the glide path for disinflation; Transition to a bi-monthly monetary policy cycle (in line with data release); Progressive reduction in the access to overnight repo borrowing and  Increasing access to liquidity through term repos and Introduction of longer tenor term repos.

CONTEXT: following Urjit Patel panel recommendation, RBI decided to adopt a new regime of conducting monetary policy review wherein monetary policy will be reviewed once every two month .Under the new regime, RBI will hold six reviews in each financial year, against the present practice of eight. At present, monetary policy authority conducts four quarterly reviews and four mid-quarter reviews.
Policy reviews will ordinarily be undertaken in a two-monthly cycle, consistent with the availability of key macroeconomic and financial data.
Patel panel on Monetary Policy framework had suggested that the Monetary Policy committee (MPC) should ordinarily meet once every two months. It should retain the discretion to meet and recommend policy decisions outside the policy review.Starting April 01, 2014 Reserve Bank of India will move to new regime of conducting monetary policy review once every two months


The Reserve Bank of India is the supreme monetary and banking authority in the country. It keeps the cash reserve of all scheduled banks and hence is known as Reserve Bank. It was established on April 1, 1935 in accordance with the provisions of the Reserve Bank of India Act, 1934. Though originally privately owned, since nationalisation in 1949, the Reserve Bank is fully owned by the Government of India. Its main function includes; formulate, implements and monitors the monetary policy, prescribes broad parameters of banking operations within which the country’s banking and financial system functions,Manages the Foreign Exchange Management Act, 1999,Issues and exchanges or destroys currency and coins not fit for circulation, Banker to the Government: performs merchant banking function for the central and the state governments; also acts as their banker. RBI Governor Raghuram Rajan

BANK RATE: it is a rate of interest at which the central bank lends money to the lower bank. It is a quantitative method of credit control.

REPO RATE:  also known as repurchased auction. When there is liquidity shortage, government repurchases government securities and payment is made to banks. It adds liquidity to market.

REVERSE REPO RATE: When the government sell dated government securities to banks to suck considerable liquidity in the market. Both repo and reverse repo rates are liquidity Adjustment Ratio (LAR).

INFLATION: it is an economic condition in which prices of goods and services rises and value of money falls or money circulation exceeds the production of goods and services.

DISINFLATION:  It refers to a situation in which prices are brought down moderately from its higher level without any adverse impact on production and employment.

MONETARY POLICY: Monetary policy is the macroeconomic policy laid down by the central bank. It involves management of money supply and interest rate and is used by the government of a country to achieve macroeconomic objectives like inflation, consumption, growth and liquidity. Monetary policy can be expansionary and contractionary in nature. Increasing money supply and reducing interest rates indicate an expansionary policy. The reverse of this is a contractionary monetary policy.


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