Context: The Reserve Bank of India maintained status quo in policy rates as the Monetary Policy Committee (MPC) voted unanimously to keep the policy repo rate at 4% to keep the stance accommodative.
Key takeaways
Marginal Standing Facility (MSF) rate and bank rate will remain unchanged at 4.25%.
Reverse repo rate will also remain unchanged at 3.35%.
GDP Projection: Real GDP growth for 2022-23 was projected at 7.8%.
Accommodative Stance: It decided to continue with an accommodative stance as long as necessary to revive and sustain growth and continue to mitigate the impact of Covid-19 on the economy, while ensuring that inflation remains within the target going forward.
An accommodative stance means a central bank will cut rates to inject money into the financial system whenever needed
Key Terms
Repo rate is the rate at which the central bank of a country (RBI in case of India) lends money to commercial banks in the event of any shortfall of funds. Here, the central bank purchases the security.
Reverse repo rate is the rate at which the RBI borrows money from commercial banks within the country.
Bank Rate: It is the rate charged by the RBI for lending funds to commercial banks.
Marginal Standing Facility (MSF): MSF is a window for scheduled banks to borrow overnight from the RBI in an emergency situation when interbank liquidity dries up completely.
What is Monetary Policy Committee?
Urjit Patel committee in 2014 recommended the establishment of the Monetary Policy Committee.
It is a statutory and institutionalized framework under the Reserve Bank of India Act, 1934, for maintaining price stability, while keeping in mind the objective of growth.
Composition: Six members (including the Chairman) – three officials of the RBI and three external members nominated by the Government of India.
The Governor of RBI is ex-officio Chairman of the committee
Functions: The MPC determines the policy interest rate (repo rate) required to achieve the inflation target (presently 4%). Decisions are taken by majority with the RBI Governor having the casting vote in case of a tie.
