UPSC Articles
Measures taken up by RBI
Part of: GS Prelims and GS-III – Economy
In News:
- In the recent meeting of the Monetary Policy Committee (MPC), several measures were taken up in a move to fight the economic impact of the countrywide lockdown to check the spread of novel coronavirus.
Key takeaways:
- It allowed the equated monthly instalments (EMIs) to be deferred by three months.
- Since non-payment will not lead to non-performing asset classification by banks, there will be no impact on credit score of the borrowers.
- The repo rate was reduced to by 75 bps to 4.4% while the reverse repo rate was cut by 90 bps point to 4%.
- Reduced reverse repo rate will help banks to lend more rather than keeping their excess liquidity with the RBI.
- RBI has also reduced the cash reserve ratio of banks, thus increasing liquidity.
Important value additions:
Monetary Policy Committee
- It is responsible for fixing the benchmark interest rate in India.
- The meetings are held at least 4 times a year.
- The committee comprises six members – three officials of the Reserve Bank of India and three external members nominated by the Government of India.
Repo Rate
- It is the rate at which the Reserve Bank of India lends money to commercial banks in the event of any shortfall of funds.
- It is used by monetary authorities to control inflation.
Reverse Repo Rate
- It is the rate at which the Reserve Bank of India borrows money from commercial banks of the country.
- It can be used to control the money supply in the country.
Cash Reserve Ratio
- It is the share of a bank’s total deposit that is mandated by the Reserve Bank of India (RBI) to be maintained with the latter in the form of liquid cash.
