Repo Rate Current Affairs - 2020
On April 9, 2020, the Reserve Bank of India projected that the consumer Price Index is to ease from 4.8% in Q1 to 4.4% in Q2 of the financial year 2020-21.
The estimated easing of CPI implies that the aggregate demand will weaken further. RBI had reduced repo rate and cash reserve ratios during the Monetary Policy Review held in March.
The RBI further estimates that the CPI is to reduce to 2.7% in Q2 and 2.4% in Q4. With the demand weakening, RBI had injected 50 billion USD of liquidity to the banks to support the economy.
Currently, RBI is following target inflation rate in the country. The inflation target has been set at 4% with +2% and -2% as target bands on either sides. This means that RBI will try to maintain the inflation rate between 2% and 6%.
The Inflation Targeting was adopted by GoI in 2015.
Consumer Price Index
The Consumer Price Index is weighted average of prices of consumer goods and services such as food, transportation and medical care. It is calculated by taking price changes of every item in the basket and averaging them.
Tags: Cash reserve ratio (CRR) • Consumer Goods • Consumer Price Index (CPI) • Inflation • Inflation Targeting
On March 27, 2020, the Reserve Bank of India announced series of measures to counter economic slowdown caused due to COVID-19. The Central bank advanced its Monetary Policy Committee meet due to COVID-19 pandemic. This was the 7th Bi-Monthly Monetary Policy Statement of the RBI for the financial year 2019-20.
The RBI measures introduced is to inject Rs 3.74 lakh core into the Indian Economy according to the RBI Governor.
While India has locked down its economic activity, the main objective of RBI is to keep finance flowing.
The repo rate was cut by 75 basis points (bps) to 4.4%, reverse repo rate was cut by 90 bps to 4%. RBI rules banks and other institutions to provide a three-month moratorium on all loans.
Other Key Decisions
The Cash Reserve Ratio was cut by 100 bps to 3% of NTDL (Net Time and Demand Liabilities). The Cash Reserve Ratio is the minimum fraction of the customer deposit that a bank can hold.
The investments are to be classified as Held To Maturity. RBI is to introduce Net Stable Funding Ratio between April and October, 2020. It is the ratio between amount of stable funding available to the amount of stable funding required.
Tags: Corona Virus • COVID-19 • Economic slow down • Liquidity • RBI