RBI Current Affairs

Independent debt management office must be set up: NITI Aayog

NITI Aayog has made strong case for setting up independent Debt Management Office for better servicing of loans that will lead to substantial reduction in India’s interest payment.

At present, government debt, including market borrowing, is managed by Reserve Bank of India (RBI). Setting up independent Debt Management Office will help to resolve issues relating to conflict of interest as RBI decides on key interest rates as well as undertakes buying and selling of government bonds.

Significance

The setting up of Debt Management Office has been one of the top priority of government for bringing reforms in financial sector. It will divest RBI of its dual and often conflicting roles as banker and manager of Central Government’s borrowing.

It will also facilitate in better planning and management of domestic and foreign market borrowings of Central Government. It will also help in strengthen bond market and help to promote investment. It will be in pursuance global practice of shifting public debt management from central bank to a debt management office.

Background

According to the Budget document, India’s total debt is estimated at Rs 66.68 lakh crore at end of March 2018. It is likely to go up to Rs 72.51 lakh crore by March 2019. The interest payment on public debt is estimated to rise from Rs 5.3 lakh crore in 2017-18 to Rs 5.75 lakh in 2018-19. In his February 2015 Budget speech, Finance Minister Arun Jaitley had proposed to set up independent Public Debt Management Agency (PDMA) within the Finance Ministry.

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RBI keeps repo rate unchanged at 6%

The six member Monetary Policy Committee (MPC) of Reserve Bank of India (RBI) has decided to maintain status quo in policy rates by keeping repo rate unchanged at 6.0% under liquidity adjustment facility (LAF).

It was RBI’s fifth bimonthly policy review for financial year 2017-18. The decision was in line with market expectations and consistent with neutral stance of monetary policy in consonance with objective of achieving medium-term inflation target of 4% within a band of +/- 2%, while supporting growth.

Policy Rates

Repo rate: It is rate at which RBI lends to its clients generally against government securities. It was unchanged at 6%.

Reverse Repo Rate: It is rate at which banks lend funds to RBI. It was unchanged at 5.75%.

Marginal Standing Facility (MSF) Rate: It is rate at which scheduled banks can borrow funds overnight from RBI against government securities. It is very short term borrowing scheme for scheduled banks. It was unchanged at 6.25%.

Bank Rate: It is rate charged by central bank for lending funds to commercial banks. It was unchanged 6.25%. It influences lending rates of commercial banks. Higher bank rate will translate to higher lending rates by banks.

Cash Reserve Ratio (CRR): It is amount of funds that banks have to keep with RBI. It was unchanged at 4%. The RBI uses CRR to drain out excessive money from system.

Statutory Liquidity Ratio (SLR): It was changed to 19.5% from 20%. It is amount that banks have to maintain a stipulated proportion of their net demand and time liabilities (NDTL) in form of liquid assets like cash, gold and unencumbered securities, treasury bills, dated securities etc.

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