IBPS Current Affairs

RBI’s Monetary Policy Review: RBI Hikes Repo Rate to 6.25%

On June 6, 2018, the six members Monetary Policy Committee (MPC) of RBI has decided to hike Repo (short term lending rate) to 6.25% from 6.00%. As per the second Bi-monthly Monetary Policy Statement, the current policy rates of RBI would be as follows:

  • Repo Rate: 6.25%
  • Reverse Repo Rate: 6.00%
  • Marginal Standing Facility (MSF) Rate: 6.50%

The recent rise of 25 basis points in key policy rates is for the first time in four and half years since NDA government was formed in May, 2014.

Repo Rate

Repo rate, or repurchase rate, is the rate at which RBI lends to banks for short periods. This is done by RBI buying government bonds from banks with an agreement to sell them back at a fixed rate. When RBI increases Repo Rate, the banks can borrow less at a lower cost and thus need to lend at higher rates. This contributes to hike of the interest rates in markets. When RBI increases the repo rate, the move is generally called a tight monetary policy stance.

Reverse Repo Rate

Reverse repo rate is the rate of interest at which the RBI borrows funds from other banks in the short term. This is done by RBI selling government bonds / securities to banks with the commitment to buy them back at a future date. The banks use the reverse repo facility to deposit their short-term excess funds with the RBI and earn interest on it. RBI can reduce liquidity in the banking system by increasing the rate at which it borrows from banks. Hiking the repo and reverse repo rate ends up reducing the liquidity and pushes up interest rates.

When the RBI increases the Reverse Repo, it means that now the RBI will provide extra interest on the money which it borrows from the banks. An increase in reverse repo rate means that banks earn higher returns by lending to RBI. This indicates a hike in the deposit rates.

Marginal Standing Facility

Marginal Standing Facility is a new Liquidity Adjustment Facility (LAF) window created by Reserve Bank of India in 2011.  MSF is the rate at which the banks are able to borrow overnight funds from RBI against the approved government securities. The rate of interest on MSF is above 100 bps above the Repo Rate.  The banks can borrow up to 1 percent of their net demand and time liabilities (NDTL) from this facility.

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Google’s Rajan Anandan Appointed Chairman of IAMAI

Google’s vice-president for South East Asia and India, Rajan Anandan has been appointed as the new chairman of Internet and Mobile Association of India (IAMAI). Rajan will succeed  FreeCharge’s co-founder and chief executive officer Kunal Shah.

The other new office bearers of the IAMAI will be MakeMyTrip chairman & Group CEO Deep Kalra who will be the vice-chairman. He succeeds Saavn co-founder and president Vinodh Bhat.  Facebook’s managing director (India & South Asia), Umang Bedi will be the new treasurer of IAMAI. Subho Ray will continue to be the president of IAMAI.

The tenure of the office bearers of the new council will be for two years.

Challenges

The new council has to work towards improving the internet connectivity especially in rural areas. It is estimated that in a population of 906 million, only 156 million are using the internet in rural areas. IAMAI has to take steps to reach to the potential 750 million users living in rural heartlands.

Another area which needs the focus of the committee is the promotion of local language content. The Indian languages accounts for only 0.1% of the content on the worldwide web. It is estimated that enabling Indian language content will help to achieve a growth of 39% in the current user base of India.

IAMAI

IAMAI is a not-for-profit industry body registered under the Societies Act, 1986. It was founded in 2004. Its aim is to improve and expand the value added services pertaining to mobiles and several online services. It is the only existing specialized body that represents the interests of online and mobile value added services

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