Measures taken up by RBI

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.