POLICY REPO RATE - ECONOMY
News: RBI
increases key lending rate by 35 bps, pegs GDP growth at 6.8%
What's in the news?
● The
Monetary Policy Committee (MPC) of the Reserve Bank of India increased the repo rate by 35 basis points
(bps) to 6.25%, and the Standing Deposit Facility stands raised to 6%.
● The
MPC’s majority view was to withdraw accommodative stance, said RBI Governor
Shaktikanta Das.
Key takeaways:
● Inflation
is expected to be 6.7% this year, with CPI inflation for the first quarter of
2023-24 projected at 5% and the second quarter at 5.4% on the assumption of a
normal monsoon.
● The
Governor said that the focus on inflation control continues and there will be
no let-up in our efforts to bring down inflation, first below 6% and then
closer to the 4% target.
● Governor Shaktikanta
Das excuded confidence about the economy being resilient and asserted that
"the worst of inflation" was behind us.
● The
central bank retained its inflation projection for 2022-23 at 6.7%, noting that
inflation will ease but stay well above the 6% upper tolerance limit set for
the RBI.
● RBI
Governor also noted that core inflation
remains sticky and the medium term outlook is exposed to heightened
uncertainties from geo-political tensions financial market volatility and the
rising incidents of weather-related disruptions.
Key terms in Monetary Policy:
1. Policy Repo Rate: 6.35%
- Repo rate is the rate at which the central bank of a country (Reserve Bank of
India in case of India) lends money to commercial banks in the event of any
shortfall of funds. Here, the central
bank purchases the security.
2. Standing Deposit Facility (SDF): 6.0%
- The SDF is a liquidity window through which the RBI will give banks an option
to park excess liquidity with it. It is different from the reverse repo
facility in that it does not require
banks to provide collateral while parking funds.
3. Marginal Standing Facility Rate: 6.60% -
MSF is a window for scheduled banks to borrow
overnight from the RBI in an emergency situation when interbank liquidity
dries up completely. Under interbank lending, banks lend funds to one another
for a specified term.
4. Bank Rate: 6.60% -
It is the rate charged by the RBI for lending funds to commercial banks.
5. CRR: 4.50%
- Under CRR, the commercial banks have to hold a certain minimum amount of
deposit (NDTL) as reserves with the central bank.
6. SLR: 18.00%
- Statutory Liquidity Ratio or SLR is the minimum percentage of deposits that a
commercial bank has to maintain in the form of liquid cash, gold or other
securities.