6th April 2024 (11 Topics)

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RBI Monetary Policy

Context

The Reserve Bank of India’s Monetary Policy Committee unanimously decided to keep the key interest rates unchanged at 6.50 per cent for the seventh consecutive time. The policy stance is also maintained at ‘withdrawal of accommodation’.

Key Highlights

Inflation is moving closer to targets. Retail inflation is projected for the current year at 4.5%. The RBI has been mandated by the government to maintain retail inflation at 4% with a 2% margin on either side.
Core inflation has declined steadily over the last nine months while fuel component remained in deflation for six straight months.
Indian economy is projected to grow 7% this financial year.
Forex Reserve: India continues to remain the largest receiver of remittances with the country's foreign portfolio investment seeing a significant turnaround.
The global economy has remained resilient and global trade is expected to grow faster in 2024.

Impact of the move

An unchanged repo rate means the loan interest rates too are likely to remain unchanged.

Key-terms in the monetary policy review
Repo rate	Repo rate is an interest rate at which the RBI provides liquidity under the liquidity adjustment facility (LAF) to banks against the collateral of government and other approved securities. Currently, the repo rate is at 6.50 percent.
Standing Deposit Facility (SDF) Rate	SDF rate is a rate at which the RBI accepts uncollateralised deposits, on an overnight basis, from banks. The SDF is also a financial stability tool in addition to its role in liquidity management. The SDF rate is placed at 25 basis points below the policy repo rate. Currently, SDF rate is at 6.25 percent.
Marginal Standing Facility (MSF) Rate	The penal rate at which banks can borrow, on an overnight basis, from the central bank by dipping into their Statutory Liquidity Ratio (SLR) portfolio up to a predefined limit (2 per cent). MSF rate currently stands at 6.75 percent.
Fine Tuning Operations	The main liquidity operation is supported by fine-tuning operations, overnight and/or longer tenor, to tide over any unanticipated liquidity changes during the reserve maintenance period. In addition, the RBI conducts, if needed, longer-term variable rate repo/reverse repo auctions of more than 14 days.
Monetary policy stance	There are various stances: Accommodative Stance, which means the central bank is prepared to expand the money supply to boost economic growth. Neutral stance suggests that the central bank can either cut rate or increase rate. This stance is typically adopted when the policy priority is equal on both inflation and growth. Hawkish stance indicates that the central bank’s top priority is to keep the inflation low. During such a phase, the central bank is willing to hike interest rates to curb money supply and thus reduce the demand. Calibrated tightening means during the current rate cycle, a cut in the repo rate is off the table.
CPI Inflation	Consumer Price Index (CPI) based Inflation is a measure of changes in the price levels of goods and services purchased by households.

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GS Analyst: Daily Current Affairs

6th April 2024 (11 Topics)

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RBI Monetary Policy

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GS Analyst: Daily Current Affairs

RBI Monetary Policy

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