REPO
RATE - ECONOMY
News:
RBI lifts loan costs to
tame inflation
What's
in the news?
●
The Monetary
Policy Committee (MPC) of the Reserve Bank of India (RBI) based on an
assessment of the macroeconomic situation and its outlook, decided by a
majority of 4 members out of 6 to increase
the policy repo rate by 25 basis points to 6.50%, with immediate effect.
Key
takeaways:
●
Consequently, the standing deposit
facility (SDF) rate will stand
revised to 6.25%; and the marginal standing facility (MSF) rate and the Bank Rate to 6.75%.
Key
projections:
Real
GDP growth:
●
Taking various factors into consideration,
real GDP growth for 2023-24 is projected at 6.4% with Q1 at 7.8%; Q2 at 6.2%; Q3 at 6.0%; and Q4 at 5.8%.
Inflation:
●
Taking into account several factors and
assuming an average crude oil price (Indian basket) of US$ 95 per barrel, the
inflation is projected at 6.5% in
2022-23, with Q4 at 5.7%.
CPI
Inflation:
●
On the assumption of a normal monsoon, CPI
inflation is projected at 5.3% for
2023-24, with Q1 at 5.0%, Q2 at 5.4%, Q3 at 5.4% and Q4 at 5.6%.
Key
terms in Monetary Policy:
1.
Policy Repo Rate: 6.50% - 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): 6.25% - 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: 6.75% - 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: 6.75% - 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.