RBI Governor Current Affairs - 2019

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RBI reduces repo rate by 35 basis points to 5.40%

Reserve Bank of India (RBI) in its third Bi-monthly Monetary Policy review for financial year 2019-20 has reduced its key policy rate (repo rate) by an unorthodox 35 basis points to 5.40%. This takes the benchmark lending rate to a nine-year low. It was overall fourth consecutive interest rate cut this year, bringing down repo rate (rate at which the RBI lends funds to banks) — by total of 110 basis points from 6.50%.

This decision was taken by RBI’s six member Monetary Policy Committee (MPC) headed by RBI Governor Shaktikanta Das. It also decided to maintain the ‘accommodative’ stance. All members of MPC voted to reduce the policy repo rate.

Key Policy Rates

  • Repo rate:It was changed by unorthodox 35 basis points to 5.40% from earlier 5.75%. It is rate at which RBI lends to commercial banks generally against government securities.
  • Reverse Repo Rate:It was revised to 5.15%. It is the rate at which banks lend funds to Central Bank.
  • Marginal Standing Facility (MSF) Rate:It was reduced to 5.65%. It is very short term borrowing scheme for scheduled banks and is rate at which scheduled banks borrow funds overnight from RBI against government securities.
  • Bank Rate:It was unchanged at 5.65%. It is rate charged by RBI for lending funds to commercial banks. It influences lending rates of commercial banks i.e. higher bank rate will lead to higher lending rates by banks.
  • Cash Reserve Ratio (CRR):It was kept unchanged at 4%. It is amount of funds that banks have to keep with RBI, which uses it as tool to drain out excessive money from system.
  • Statutory Liquidity Ratio (SLR): It was unchanged at 18.75%. It is amount that banks are required to maintain as stipulated proportion of their net demand and time liabilities (NDTL) in form of liquid assets such as cash, gold treasury bills, unencumbered securities and dated securities etc.

MPC Forecast

  • GDP growth forecast for 2019-20: It has been lowered to 6.9% from 7% earlier
  • GDP growth forecast in first half of 2019-20: It will be in the range of 5.8 to 6.6%
  • GDP growth forecast in 2nd half of 2019-20: It will be in the range of 7.3% to 7.5%
  • Consumer price index (CPI)-based inflation forecast: It is projected at 3.1% during July-September 2019 and at 3.5-3.7% in October-March 2019-20

About Monetary Policy Committee

It is a statutory body established underprovisions of RBI act 1934. It is mandated to keep the inflation within targets set by government in consultation with RBI. It also accomplishes the task by making suitable changes to policy rate i.e. repo rate. Its meetings are held at least 4 times a year and publish its decisions after each such meeting.

Composition: It is executive body of 6 members. Of these, three members are from RBI while other three members are nominated by Union Government based on recommendations of a search cum selection committee consisting of Cabinet secretary (who is Chairperson), Governor of RBI, Secretary of Department of Economic Affairs (Ministry of Finance), and three experts in field of economics or banking who are nominated by central government.

MPC members: Shaktikanta Das, Ravindra Dholakia, Michael Debabrata Patra, Bibhu Prasad, Chetan Ghate and Pami Dua

Bimal Jalan led panel defers report on RBI surplus funds

The Reserve Bank of India (RBI) committee led by Bimal Jalan (former RBI governor) constituted for considering guidelines for transfer of central bank’s surplus funds to government delayed submitting its report after lack of consensus among its members. The panel was originally supposed to submit its report in April 2019.

Background

The RBI committee was appointed in December 2018 to review Economic Capital Framework (ECF) for central bank after then Union Ministry of Finance under Arun Jaitely advised RBI to transfer surplus funds to central government.

Arguments by Finance Ministry:  The finance ministry was of view that the buffer of 28% of gross assets maintained by RBI bank is well above global norm of about 14%. Thus, RBI board in its meeting held on 19 November 2018, decided to constitute a panel to examine Economic Capital Framework (ECF).

This led to loggerheads between government and RBI under its previous governor Urjit Patel (who later resigned) over Rs.9.6 lakh crore surplus capital that central bank keeps with itself.

About ECF Panel

Members: The six member committee headed by Bimal Jalan includes- Rakesh Mohan (former deputy governor of RBI) as vice-chairman, Subhash Chandra Garg (finance secretary), N S Vishwanathan (RBI deputy governor), and lastly RBI central board members Sudhir Mankad and Bharat Doshi.

Objective: The panel was entrusted to review best practices followed by central banks throughout the world in making assessment and provisions for risks.

Timeline: The ECF panel was required to submit its report to RBI within 90 days of its first meeting. The 1st meeting of ECF took place on 8 January 2019 following which the panel was given a 3 month extension.

Way Forward

The Bimal Jalan led panel will now meet one more time before submitting its report by end of June 2019 and the delay in finalising report which may be over difference of opinion will also be discussed.