Measures taken up by RBI

  • IASbaba
  • March 28, 2020
  • 0
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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.

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