RBI Current Affairs

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RBI eases rates, trims repo rate by 25bps to 7.25%

RBI reduced the Repo Rate (the rate at which RBI lends money to commercial banks), to 7.25% from 7.5% while keeping the CRR (Cash Reserve Ratio- the portion of deposits that banks require to maintain with RBI) unchanged at 4%.

Monetary Measures

  • Repo rate: reduction by 25 bps from 7.5% to 7.25%
  • Reverse repo rate: 6.25% (100 bps below repo rate)
  • MSF (Marginal Standing facility) rate: 8.25% (100 bps above repo rate)
  • Bank rate: 8.25%
  • Cash reserve ratio retained at 4% of NDTL (Net Demand and Time Liabilities)

Impact of repo rate cut:

  • Reduced cost of overnight borrowing for commercial banks from RBI.
  • Lead to reduced lending rates, helping in better macroeconomic sentiments.
  • RBI has invoked banks to pass the impact of above to end users as banks hold to factor the benefit.

Why a Need of reduction in repo rate ?

  • In order to continue to address risk towards growth.
  • Insistence by Government and industry to lower borrowing costs to spur economic growth, estimated to have slumped to 5% in the year ended March 31, 2013.
  • Guard against the risks of inflation pressures re-emerging and adversely affecting inflation expectations.
  • Manage liquidity to ensure adequate credit flow to the productive sectors of the economy.

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Estimated GDP Growth at 5.7% for 2013-2014 – RBI

The RBI’s has projected a GDP growth for 2013-14 at 5.7% as against finance ministry’s projection of 6.1%- 6.7%. Indian economy grew by 5% in 2012-2013 on account of poor performance of manufacturing, agriculture and services sector. RBI’s current assessment is that economic activity will remain subdued and will only show a modest pick-up in second half of 2013-14, subject to appropriate conditions in the later part of year.

Assumptions for calculating growth rate

Agricultural Sector: Normal monsoon and agricultural growth are expected to return to trend levels in second half of 2013-14.

Industrial & Service Sector: Growth outlook expected to be subdued primarily due to:

  • Decline in new investment
  • Existing projects stalled by bottlenecks and implementation gaps
  • Sluggish growth in services and exports driven by bleak global sentiments.

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RBI to start plastic money project on trial basis

Deputy Governor, RBI, K. C. Chakrabarty held that the RBI is probable to commence the introduction of plastic notes in select parts of India on a trial basis and it would commence with the introduction of Rs.10 denomination and continue with other small denominations.

  • Plastic notes can withstand more wear-and-tear than their paper counterparts
  • Have a longer life than paper counterparts
  • Plastic notes are more difficult to fake and could therefore be a means of countering counterfeiting.

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