RBI Monetary Policy: RBI keeps Repo Rate unchanged at 4.0 per cent

The Reserve Bank of India’s (RBI) Monetary Policy Committee (MPC) headed by Reserve Bank of India (RBI) Governor Shaktikanta Das kept the repo rate unchanged at 4 per cent for the 10th consecutive time while maintaining an ‘accommodative stance’ as long as necessary. The reverse repo rate will continue to be 3.35 per cent. The central bank had last revised the policy rate on May 22, 2020, in an off-policy cycle to perk up demand by cutting the interest rate to a historic low.

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Reserve Bank of India conducted the 6th and the last Monetary Policy Committee (MPC) meeting for 2021-22 between February 8-10, 2022. The next meeting of the MPC is scheduled during April 6-8, 2022.

The Marginal Standing Facility (MSF) rate and bank rates remain unchanged:

• Policy Repo Rate: 4.00%
• Reverse Repo Rate: 3.35%
• Marginal Standing Facility Rate: 4.25%
• Bank Rate: 4.25%
• CRR: 4%
• SLR: 18.00%

RBI Monetary Policy Highlights & Key Decisions:

• The MPC decided to continue with the accommodative stance.
• RBI has projected the real GDP growth for 2022-23 at 7.8 per cent.
• For the current fiscal year, RBI projected real GDP growth of 9.2 per cent and expects that it will take the economy above the pre-pandemic level.
• For the current fiscal year, RBI retained its retail inflation projection at 5.3 per cent.
• MPC has been given the mandate to maintain annual inflation at 4 per cent until March 31, 2026, with an upper tolerance of 6 per cent and lower tolerance of 2 per cent.

The composition of the Monetary Policy Committee is as follows:

• Governor of the Reserve Bank of India – Chairperson, ex officio: Shri Shaktikanta Das.
• Deputy Governor of the Reserve Bank of India, in charge of Monetary Policy– Member, ex officio: Dr Michael Debabrata Patra.
• One officer of the Reserve Bank of India to be nominated by the Central Board – Member, ex officio: Dr Mridul K. Saggar.
• A professor at the Mumbai-based Indira Gandhi Institute of Developmental Research: Prof. Ashima Goyal.
• A professor of finance at the Indian Institute of Management in Ahmedabad: Prof. Jayanth R Varma.
• An agricultural economist and a senior adviser with the National Council of Applied Economic Research in New Delhi: Dr Shashanka Bhide.

Some important instruments of Monetary Policy:

The RBI’s Monetary Policy has several direct and indirect instruments which are used for implementing the monetary policy. Some important instruments of Monetary Policy are as follows:

Repo Rate: It is the (fixed) interest rate at which banks can borrow overnight liquidity from the Reserve Bank of India against the collateral of government and other approved securities under the liquidity adjustment facility (LAF).

Reverse Repo Rate: It is the (fixed) interest rate at which the Reserve Bank of India can absorb liquidity from banks on an overnight basis, against the collateral of eligible government securities under the LAF.

Liquidity Adjustment Facility (LAF): The LAF has overnight as well as term repo auctions under it. The term repo helps in the development of the inter-bank term money market. This market sets the benchmarks for the pricing of loans and deposits. This helps in improving the transmission of monetary policy. As per the evolving market conditions, the Reserve Bank of India also conducts variable interest rate reverse repo auctions.

Marginal Standing Facility (MSF): MSF is a provision that enables the scheduled commercial banks to borrow an additional amount of overnight money from the Reserve Bank of India. Bank can do this by dipping into their Statutory Liquidity Ratio (SLR) portfolio up to a limit at a penal rate of interest. This helps the banks to sustain the unanticipated liquidity shocks faced by them.

Important takeaways for all competitive exams:

• RBI 25th Governor: Shaktikanta Das; Headquarters: Mumbai; Founded: 1 April 1935, Kolkata.

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