Context:
The Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) decided to keep the policy repo rate under the liquidity adjustment facility (LAF) unchanged.
Relevance:
GS III: Indian Economy
Dimensions of the Article:
- Key Details
- About Monetary Policy Committee (MPC)
Key Details:
Repo Rate:
- The repo rate is now set at 6.50 percent.
- It represents the rate at which the Reserve Bank of India lends money to commercial banks in case of a shortage of funds.
Standing Deposit Facility (SDF):
- The SDF rate stands at 6.25 percent.
- SDF is a liquidity window provided by the RBI for banks to park excess liquidity without the need for collateral.
Marginal Standing Facility (MSF) Rate:
- The MSF rate is set at 6.75 percent.
- MSF serves as a borrowing window for banks from the central bank during situations when inter-bank liquidity is completely depleted.
Bank Rate:
- The Bank Rate is currently at 6.75 percent.
- It is the rate at which the central bank lends funds to commercial banks.
- It is important to note that while the Repo Rate and Bank Rate are different, as the Repo Rate is for short-term borrowing against securities, the Bank Rate is the rate charged for lending funds to commercial banks.
About Monetary Policy Committee (MPC)
- The Monetary Policy Committee (MPC) is the body of the RBI, headed by the Governor, responsible for taking the important monetary policy decisions about setting the repo rate.
- Repo rate is ‘the policy instrument’ in monetary policy that helps to realize the set inflation target by the RBI (at present 4%).
Membership of the MPC
- The Monetary Policy Committee (MPC) is formed under the RBI with six members.
- Three of the members are from the RBI while the other three members are appointed by the government.
- Members from the RBI are the Governor who is the chairman of the MPC, a Deputy Governor and one officer of the RBI.
- The government members are appointed by the Centre on the recommendations of a search-cum-selection committee which is to be headed by the Cabinet Secretary.
Objectives of the MPC
Monetary Policy was implemented with an initiative to provide reasonable price stability, high employment, and a faster economic growth rate.
The major four objectives of the Monetary Policy are mentioned below:
- To stabilize the business cycle.
- To provide reasonable price stability.
- To provide faster economic growth.
- Exchange Rate Stability.
-Source: Indian Express
