The Reserve Bank of India (RBI) Monetary Policy Committee under Governor Shaktikanta Das kept the repo rate unchanged at 6.5% for the ninth time. Since May 2022, the central bank has raised the repo rate by 250 basis points (bps). Also cut banks’ cash reserve ratio by 50 basis points to 4 percent.

RBI raised the retail inflation forecast to 4.8 per cent for FY’25, from 4.5 per cent earlier

 Maintain the monetary policy stance ‘Neutral’.

Decided to raise interest rate ceilings on FCNR-B deposits, effective immediately, along with increasing FCNR deposit rates

cuts FY25 GDP growth estimates to 6.6% from 7.2% earlier.

Repo rate unchanged at 6.50%

Cash Reserve Ratio is  4%,

Standing Deposit Facility Rate remains at 6.25%; while Marginal Standing Facility Rate and Bank Rate also unchanged at 6.75%.

Repo Rate: 6.50 %.

The reverse repo rate: 3.35%

The Marginal Standing Facility (MSF): 6.75%

The Bank Rate: 6.75 %

The Standing Deposit Facility rate: 6.25 %

Cash Reserve Ratio: 4.50%

Statutory Liquidity Ratio: 18.00%

LEARNING FROM HOME/WITHOUT CLASSES/BASICS

The Reserve Bank of India is the supreme monetary and banking authority in the country. it is called a Reserve Bank because it keeps the cash reserve of all scheduled banks.

It was established on April 1, 1935. since its nationalization in 1949, the Reserve Bank is fully owned by the Government of India

The Reserve Bank of India’s main function  includes; formulating, implementing, and monitoring the monetary policy, prescribing broad parameters of banking operations within which the country’s banking and financial system functions, Managing the Foreign Exchange Management Act, 1999, Issues and exchanges or destroying
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.

Reserve Bank of India  Governor SHAKTIKANTA DAS

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.  The government repurchases government securities when there is a liquidity shortage. It adds liquidity to the market. It simply means the repo rate is the rate at which RBI lends money to commercial banks against the pledge of government securities whenever the banks need funds to meet their day-to-day obligations.

                       REVERSE REPO RATE

When the government sells dated government securities to banks to suck considerable liquidity in the market. Both repo and reverse repo rates are liquidity Adjustment Ratios (LAR).

                         MONETARY POLICY

 Monetary policy is the macroeconomic policy laid down by the central bank. It involves the 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. Increasing the money supply and reducing interest rates indicate an expansionary policy. The reverse of this is a contractionary monetary policy.

                  MONETARY POLICY TOOLS

To control inflation, the Reserve Bank of India needs to decrease the supply of money or increase the cost of funds to keep the demand for goods and services in control.

                QUANTITATIVE TOOLS

The tools applied by the policy impact the money supply in the entire economy, including sectors such as manufacturing, agriculture, automobile, housing, etc.

              Reserve Ratio

Banks must keep aside a set percentage of cash reserves or RBI-approved assets

Reserve ratio is of two types:

Cash Reserve Ratio (CRR);

Statutory Liquidity Ratio (SLR) – Banks are required to set aside this portion in liquid assets such as gold or RBI-approved securities such as government securities. 

                                             
Open Market Operations (OMO):

In order to control the money supply, RBI buys and sells government securities in the open market.

The Central Bank refers to these operations conducted in the open market as Open Market Operations.

 The objective of OMOs are to keep a check on temporary liquidity mismatches in the market, owing to foreign capital flow.

QUALITATIVE TOOLS

Unlike quantitative tools which have a direct effect on the entire economy’s money supply, qualitative tools are selective tools that have an effect in the money supply of a specific sector of the economy.

Margin requirements – RBI prescribes a certain margin against collateral, which in turn impacts the borrowing habit of customers. 

Moral suasion – By way of persuasion, RBI convinces banks to keep money in government securities, rather than certain sectors.

Selective credit control – Controlling credit by not lending to selective industries or speculative businesses.