RBI:Repo rate cut on hold
RBI maintains status quo on rates in its first by-monthly monetary policy statement of fiscal 2021-22.
The central bank also retained GDP growth forecast for FY22 at 10.5%, and inflation projection at 5% for the fiscal first quarter.
For the first half of FY22, inflation is seen at 5.2%, at 4.4% in the December quarter and 5.1% in March quarter of this financial year.
In the policy review, the RBI decided to extend the RTGS and NEFT payments platforms to prepaid payment instruments, white label ATMs as well.
Repo Rate : 4%.
The reverse repo rate : 3.35%
The marginal standing facility (MSF): 4.25%
The Bank Rate: 4.25%
RBI maintained accommodative stance. MPC voted unanimously in favour of the status quo.
LEARNING FROM HOME/ WOTHOUT CLASSES/ BASICS
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 .
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 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. When there is liquidity shortage, government repurchases government securities and payment is made to banks. It adds liquidity to market.It simply means repo rate is the rate at which RBI lends money to commercial banks against the pledge of government securities whenever the banks are in need of funds to meet their day-to-day obligations.
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.
A bond is a debt instrument in which an investor loans money to an entity (typically corporate or government) which borrows the funds for a defined period of time at a variable or fixed interest rate. Owners of bonds are debt holders, or creditors, of the issuer.
Government Security (G-Sec)
A Government Security (G-Sec) is a tradeable instrument issued by the Central Government or the State Governments. It acknowledges the Government’s debt obligation. Such securities are short term (usually called treasury bills, with original maturities of less than one year) or long term (usually called Government bonds or dated securities with original maturity of one year or more. G-Secs carry practically no risk of default and, hence, are called risk-free gilt-edged instruments.
Cash Reserve Ratio (CRR) is the share of a bank’s total deposit that is mandated by the Reserve Bank of India (RBI) to be maintained with the latter in the form of liquid cash.
The Cash Reserve Ratio acts as one of the reference rates when determining the base rate. Base rate means the minimum lending rate below which a bank is not allowed to lend funds. The base rate is determined by the Reserve Bank of India (RBI).
Apart from this, there are two main objectives of the Cash Reserve Ratio:
- Cash Reserve Ratio ensures that a part of the bank’s deposit is with the Central Bank and is hence, secure.
- Another objective of CRR is to keep inflation under control. During high inflation in the economy, RBI raises the CRR to lower the bank’s loanable funds.
Difference between CRR & SLR
Both CRR & SLR are the components of the monetary policy. However, there are a few differences between them. The following table gives a glimpse into the dissimilarities:
|Statutory Liquidity Ratio (SLR)||Cash Reserve Ratio (CRR)|
|In the case of SLR, banks are asked to have reserves of liquid assets, which include both cash and gold.||The CRR requires banks to have only cash reserves with the RBI|
|Banks earn returns on money parked as SLR||Banks don’t earn returns on money parked as CRR|
|SLR is used to control the bank’s leverage for credit expansion.||The Central Bank controls the liquidity in the Banking system with CRR.|
|In the case of SLR, the securities are kept with the banks themselves, which they need to maintain in the form of liquid assets.||In CRR, the cash reserve is maintained by the banks with the Reserve Bank of India.|