MSF Current Affairs - 2019

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RBI Monetary Policy review: Repo rate lowest since 2010

The Reserve bank of India (RBI) in its bi-monthly monetary policy review reduced repo rate by 25 basis points to 5.75% from current 6.0% with immediate effect. This is RBI’s third cut this year and has reduced Repo rate at lowest since 2010.

Key Highlights

  • With Repo Rate adjusted to 5.75%, consequently Reverse Repo Rate under Liquid Adjustment Facility (LAF) stands adjusted to 5.5% and Marginal Standing Facility (MSF) rate and the Bank Rate to 6.0%.
  • Other revised Rates- Cash reserve ratio (CRR) unchanged at 4%; Retail inflation forecast raised marginally to 3% -3.1% for first half (H1) of 2019-20) and 3.4% -3.7% for second half (H2).
  • GDP Growth Rate: RBI lowered Gross Domestic Product (GDP) growth forecast for financial year 2019-20 to 7% from 7.2% in April Monetary Policy. This is in range of 6.4% to 6.7% for first half (H1) of 2019-20 and 7.2-7.5% for second half (H2) with risks evenly balanced. This lowered forecast was taking into account current weak global demand due to escalation in trade wars and weakened private consumption in rural areas.
  • The six member Monetary Policy Committee (MPC) headed by RBI Governor Shaktikanta Das unanimously decided to reduce policy repo rate and to change stance of monetary policy from neutral to accommodative.
  • MPC Composition: The MPC comprise of Shaktikanta Das, as its Chairman and members including Chetan Ghate, Pami Dua, Ravindra Dholakia, Michael Debabrata Patra, Viral Acharya. The next MPC meeting is scheduled from 5 to 7 August 2019.
  • In an attempt of boosting digital transactions, RBI decided to do away with charges levied on RTGS and NEFT transactions and banks will be required to pass this benefit to their customers.
  • Significance: The reduced repo rate was welcomed by industry body as this rate cut will encourage banks to lower their lending rates for both retail and corporate credits. This is important as reviving business confidence and consumer confidence in economy is need of hour.
  • Way Forward: Although measure will rekindle economic growth and improve business sentiments but credit policy resolution and RBI Governor’s emphasis on faster and higher transfer of rate cuts will be reassured only if done by banks.

Month: Categories: Business, Economy & BankingUPSC

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RBI keeps all key rates intact in fourth bi-monthly monetary policy

The RBI announced its fourth bi-monthly monetary policy on September 30, 2014. This follows the third bi-monthly monetary policy which was announced in August 2014.

CRR

The CRR of scheduled was kept unchanged at 4% of the bank’s NDTL (net demand and time liabilities). CRR refers to the proportion of its deposits that a bank has to hold in the form of cash. The RBI uses CRR as a tool to control liquidity in the market (and thereby inflation) and to reduce the risk to investors’ deposits.

SLR (Statutory Liquidity Ratio)

The SLR remained unchanged at 22%. SLR refers to the proportion of its total NDTL that the bank has to maintain in form of liquid assets. These liquid assets can either be cash or gold or unencumbered government securities. This directly affects the proportion of funds that the bank can lend.

LAF (Liquidity Adjustment Facility)

The policy repo rate under the LAF was kept unchanged at 8%. The reverse repo rate also remained unchanged at 7%. LAF is the tool by which banks borrow to meet their short term day to day monetary requirements. Difference between LAF and Bank rate is the requirement of collateral. Repo rate is the interest that banks pay to borrow from the RBI. Reverse repo is the rate at which RBI borrows from banks after lending securities as collateral. LAF was introduced in India in accordance with the recommendation of the Narasimham Commttee on Banking Reforms.

 ECR Facility (Export Credit Finance)

The liquidity provided under the ECR Facility was reduced from 32% to 15% of eligible export credit outstanding. This change will be in effect from 10 of October, 2014.

 MSF (Marginal Standing Facility) and Bank Rate

MSF and Bank rate also saw no change at 9% for both. MSF is the rate at which only scheduled commercial banks are allowed to borrow from RBI. This is over and above the LAF. MSF acts as a last resort for bankers. Bank rate is the rate at which RBI lends to banks without any collateral such as government securities.

Liquidity under overnight repos

The RBI will continue to provide liquidity under overnight repos up to  0.25 %  of the specific bank’s NDTL will be given at the LAF repo rate.

Liquidity under 7 day and 14 day term repos

Liquidity for 7 day and 14 day term repos  up to 0.75% of NDTL of the banking system  will be provided through auctions

Month: Categories: Business, Economy & Banking

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