Urjit Patel Current Affairs

RBI keeps repo rate unchanged in first monetary policy review of 2017-18

The Reserve Bank of India (RBI) in its first bimonthly monetary policy review of the financial year 2017-18, has kept the key policy rate, the repo rate unchanged, but raised reverse repo rate by 25 bps to 6%, from 5.75%.

Decision in this regard was taken by monetary policy committee (MPC) —which decides interest rates and all six members of the MPC voted in favour of the decision.

Policy Rates

  • Repo rate: It is the rate at which RBI lends to its clients generally against government securities. It was unchanged at 25%.
  • This was the third successive quarterly review in which the RBI has kept its repo rate unchanged at 6.25%.
  • Reverse Repo Rate: It is the rate at which banks lend funds to the RBI. It was raised the Reverse Repo (RR) rate by 25 bps to 6%.
  • Marginal Standing Facility (MSF) Rate: It is rate at which the scheduled banks can borrow funds overnight from RBI against government securities. It is a very short term borrowing scheme for scheduled banks. It was cut to 5%.
  • Bank Rate: It is rate charged by the central bank for lending funds to commercial banks. It was set to 5%.
  • It influences lending rates of commercial banks. Higher bank rate will translate to higher lending rates by the banks.
  • Cash Reserve Ratio (CRR): It is the amount of funds that the banks have to keep with the RBI. It was unchanged at 4%. The RBI uses the CRR to drain out excessive money from the system.
  • Statutory Liquidity Ratio (SLR): It was unchanged 20.50%. It is amount that banks have to maintain a stipulated proportion of their net demand and time liabilities (NDTL) in the form of liquid assets like cash, gold and unencumbered securities, treasury bills, dated securities etc.
Key Facts
  • The policy decision taken by RBI was consistent with its neutral policy stance with the objective of achieving the medium-term target for retail inflation i.e. 4%.
  • The RBI held that the future course of monetary policy would largely depend on incoming data on how macroeconomic conditions are evolving.
  • It has set its inflation projection to an average of 4.5% in the first half of 2017-18 and 5% in the second half. It has kept GVA growth projection unchanged at 7.4% for FY18 as compared with 6.7% in FY17.
  • The central bank also allowed banks to invest in Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InvITs) in a bid to spur investments in core infrastructure sectors.

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RBI keeps key rates unchanged in 6th bi-monthly monetary policy review

The Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) headed by RBI Governor Urjit Patel has kept the key policy rates unchanged.

 It was central bank’s sixth bi-monthly and last policy for the financial year 2016-17 and overall the third by the MPC. All six members of the MPC voted in favour of holding rates.

Besides, RBI also changed its stance from accommodative to neutral. It also lowered GDP growth forecast for the current fiscal to 6.9%. However the apex bank expects a rebound in GDP growth to 7.4% in 2017-18.

 Policy Rates
  • Repo rate under the liquidity adjustment facility (LAF): Unchanged at 6.25 percent.
  • Reverse repo rate under the LAF: Unchanged at 5.75 per cent.
  • Marginal standing facility (MSF): Unchanged at 6.75 per cent.
  • Bank Rate: Unchanged at 6.75 per cent.
  • Reserve Ratios Cash Reserve Ratio (CRR) of scheduled banks: Unchanged at 4.0 per cent of net demand and time liability (NDTL).
  • Statutory Liquidity Ratio (SLR): Unchanged 20.50 per cent.

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