Part of: GS Prelims and GS-III – Economy; Monetary policy
Various decisions were announced by RBI while unveiling Bimonthly Monetary Policy
Policy Rate Unchanged: The Policy rate was unchanged at 4% for the sixth time in a row and reverse repo rate at 3.35%
Growth Prospects downsized: India’s GDP growth rate projection was slashed to 9.5% due to uncertainties caused by second wave of COVID-19
Liquidity Boost: Rs. 15,000-crore liquidity window to be launched by banks for contact intensive sectors like Hotel and tourism. Also, fresh Rs 16000-crore liquidity line to Small Industries Development Bank of India (SIDBI) for on-lending/ refinancing through novel models and structures.
Upper limit for MSMEs revised: The maximum limit for borrowers is enhanced from Rs. 25 crore to Rs. 50 crore for MSMEs, small businesses and business loans to individuals
Value Addition
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.
