In view of the COVID-19 pandemic, the Reserve Bank of India’s Monetary Policy Committee (MPC) decided to advance the Bi-monthly Monetary Policy meet which was scheduled to be held on 03rd June 2020 and the announcement was meant to be made on 05th June 2020. The meeting was advanced to 20th, 21st and 22nd May 2020. During the Monetary Policy meet, the MPC analysed the current & evolving macroeconomic and financial conditions and has decided to take a accommodative stance and hence reduced the policy repo rate to revive growth as well as to mitigate the impact of COVID-19. With its decisions, MPC aims to keep inflation within the target and hence to preserve financial stability.
The key decisions taken in the Monetary Policy Committee meeting are:
Some more announcements from the press conference held by the Reserve Bank of India:
(a) granting of 3 months moratorium on term loan installments
(b) deferment of interest for 3 months on working capital facilities
(c) easing of working capital financing requirements by reducing margins or reassessment of working capital cycle
(d) exemption from being classified as ‘defaulter’ in supervisory reporting and reporting to credit information companies
(e) extension of resolution timelines for stressed assets
(f) asset classification standstill by excluding the moratorium period of 3 months, etc. by lending institutions.
The Reserve Bank of India has decided to extend the above measures by another three months i.e. from June 1, 2020 till August 31, 2020, hence taking the total period of applicability of the measures to six months (i.e. from March 1, 2020 to August 31, 2020).
What is Monetary policy?
Monetary Policy is the central bank’s policy which uses the monetary instruments like Repo rate, Reverse repo rate, Liquidity Adjustment Facility and many others, to achieve the goals stated in the Act. In India, the Reserve Bank of India (RBI) has been given the responsibility of conducting monetary policy as mandated under the Reserve Bank of India Act, 1934.
Objectives of monetary policy?
The Monetary Policy Framework:
The amendment in the Reserve Bank of India (RBI) Act, 1934 provides the Reserve Bank of India a legislative mandate to operate the monetary policy framework of the country. This framework aims to set the policy (repo) rate after the assessment of the current and evolving macroeconomic situation, and modulation of liquidity conditions to anchor money market rates at or around the repo rate.
What is the Composition of the Monetary Policy Committee?
The Central Government has constituted the six-member monetary policy committee (MPC) in September 2016, according to the Section 45ZB of the amended RBI Act, 1934.
The composition of the Monetary Policy Committee is as follows:
1. Governor of the Reserve Bank of India – Chairperson, ex officio: Shri Shaktikanta Das
2. Deputy Governor of the Reserve Bank of India, in charge of Monetary Policy– Member, ex officio: Dr. Michael Debabrata Patra
3. One officer of the Reserve Bank of India to be nominated by the Central Board – Member, ex officio: Dr. Janak Raj
4. Dr. Chetan Ghate, Professor, Indian Statistical Institute (ISI): Member
5. Dr. Pami Dua, Director, Delhi School of Economics: Member
6. Dr. Ravindra H. Dholakia, Professor, Indian Institute of Management, Ahmedabad: Member.
Some important instruments of Monetary Policy:
The RBI’s Monetary Policy has several direct and indirect instruments which is used for implementing the monetary policy. Some important instruments of Monetary Policy are as follows:
Accommodative stance of RBI’s Monetary Policy Statement:
Accommodative stance is taken by the RBI’s Monetary Policy Committee to expand the overall money supply to boost the economy when the growth is slowing down.
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