{"id":979,"date":"2023-04-07T00:00:00","date_gmt":"2023-04-07T00:00:00","guid":{"rendered":"https:\/\/www.nextias.com\/current_affairs\/uncategorized\/07-04-2023\/rbis-monetary-policy-statement\/"},"modified":"2023-04-07T00:00:00","modified_gmt":"2023-04-07T00:00:00","slug":"rbis-monetary-policy-statement","status":"publish","type":"post","link":"https:\/\/www.nextias.com\/ca\/current-affairs\/07-04-2023\/rbis-monetary-policy-statement","title":{"rendered":"RBI\u2019s Monetary Policy Statement"},"content":{"rendered":"<p><span style=\"font-size:12pt\"><span style=\"font-family:Arial\"><span style=\"color:#000000\"><strong><u>In News<\/u><\/strong><\/span><\/span><\/span><\/p>\n<ul>\n<li style=\"list-style-type:disc\"><span style=\"font-size:12pt\"><span style=\"font-family:Arial\"><span style=\"color:#000000\">The Reserve Bank of India held its first bi-monthly monetary policy of 2023-24.<\/span><\/span><\/span><\/li>\n<\/ul>\n<p><span style=\"font-size:12pt\"><span style=\"font-family:Arial\"><span style=\"color:#000000\"><strong><u>What is the Monetary Policy Committee?<\/u><\/strong><\/span><\/span><\/span><\/p>\n<ul>\n<li style=\"list-style-type:disc\"><span style=\"font-size:12pt\"><span style=\"font-family:Arial\"><span style=\"color:#000000\"><strong>About:\u00a0<\/strong><\/span><\/span><\/span>\n<ul>\n<li style=\"list-style-type:circle\"><span style=\"font-size:12pt\"><span style=\"font-family:Arial\"><span style=\"color:#000000\">The <\/span><\/span><\/span><span style=\"font-size:12pt\"><span style=\"font-family:Arial\"><span style=\"color:#000000\"><strong>Monetary Policy Committee (MPC)<\/strong><\/span><\/span><\/span><span style=\"font-size:12pt\"><span style=\"font-family:Arial\"><span style=\"color:#000000\"> is a committee of the <\/span><\/span><\/span><span style=\"font-size:12pt\"><span style=\"font-family:Arial\"><span style=\"color:#000000\"><strong>Central Bank in India (Reserve Bank of India)<\/strong><\/span><\/span><\/span><span style=\"font-size:12pt\"><span style=\"font-family:Arial\"><span style=\"color:#000000\">, headed by its<\/span><\/span><\/span><span style=\"font-size:12pt\"><span style=\"font-family:Arial\"><span style=\"color:#000000\"><strong> Governor<\/strong><\/span><\/span><\/span><span style=\"font-size:12pt\"><span style=\"font-family:Arial\"><span style=\"color:#000000\">, which is entrusted with the task of fixing the benchmark policy interest rate (repo rate) to contain inflation within the specified target level.<\/span><\/span><\/span><\/li>\n<li style=\"list-style-type:circle\"><span style=\"font-size:12pt\"><span style=\"font-family:Arial\"><span style=\"color:#000000\">Under <\/span><\/span><\/span><span style=\"font-size:12pt\"><span style=\"font-family:Arial\"><span style=\"color:#000000\"><strong>Section 45ZB of the amended RBI Act, 1934<\/strong><\/span><\/span><\/span><span style=\"font-size:12pt\"><span style=\"font-family:Arial\"><span style=\"color:#000000\">, the Union government is empowered to constitute a <\/span><\/span><\/span><span style=\"font-size:12pt\"><span style=\"font-family:Arial\"><span style=\"color:#000000\"><strong>six-member Monetary Policy Committee (MPC)<\/strong><\/span><\/span><\/span><span style=\"font-size:12pt\"><span style=\"font-family:Arial\"><span style=\"color:#000000\"> to determine the policy interest rate required to achieve the inflation target.\u00a0<\/span><\/span><\/span><\/li>\n<\/ul>\n<\/li>\n<li style=\"list-style-type:disc\"><span style=\"font-size:12pt\"><span style=\"font-family:Arial\"><span style=\"color:#000000\"><strong>Background:<\/strong><\/span><\/span><\/span>\n<ul>\n<li style=\"list-style-type:circle\"><span style=\"font-size:12pt\"><span style=\"font-family:Arial\"><span style=\"color:#000000\">MPC was set up consequent to the agreement reached between Government and RBI to task RBI with the responsibility for price stability and inflation targeting.\u00a0<\/span><\/span><\/span><\/li>\n<li style=\"list-style-type:circle\"><span style=\"font-size:12pt\"><span style=\"font-family:Arial\"><span style=\"color:#000000\">The Reserve Bank of India and Government of India signed the Monetary Policy Framework Agreement on 20 February 2015.<\/span><\/span><\/span><\/li>\n<li style=\"list-style-type:circle\"><span style=\"font-size:12pt\"><span style=\"font-family:Arial\"><span style=\"color:#000000\">Subsequently, the government, while unveiling the Union Budget for 2016-17 in the Parliament, proposed to amend the Reserve Bank of India (RBI) Act, 1934 for giving a statutory backing to the aforementioned <\/span><\/span><\/span><span style=\"font-size:12pt\"><span style=\"font-family:Arial\"><span style=\"color:#000000\"><strong>Monetary Policy Framework Agreement and for setting up a Monetary Policy Committee (MPC).<\/strong><\/span><\/span><\/span><\/li>\n<li style=\"list-style-type:circle\"><span style=\"font-size:12pt\"><span style=\"font-family:Arial\"><span style=\"color:#000000\">The history of suggestions for setting up a <\/span><\/span><\/span><span style=\"font-size:12pt\"><span style=\"font-family:Arial\"><span style=\"color:#000000\"><strong>MPC is not new and traces back to 200<\/strong><\/span><\/span><\/span><span style=\"font-size:12pt\"><span style=\"font-family:Arial\"><span style=\"color:#000000\">2 when the <\/span><\/span><\/span><span style=\"font-size:12pt\"><span style=\"font-family:Arial\"><span style=\"color:#000000\"><strong>Y. V. Reddy Committee<\/strong><\/span><\/span><\/span><span style=\"font-size:12pt\"><span style=\"font-family:Arial\"><span style=\"color:#000000\"> recommended a MPC to decide policy actions. Subsequently, suggestions were made to set up a <\/span><\/span><\/span><span style=\"font-size:12pt\"><span style=\"font-family:Arial\"><span style=\"color:#000000\"><strong>MPC in 2006 by the Tarapore Committee, in 2007<\/strong><\/span><\/span><\/span><span style=\"font-size:12pt\"><span style=\"font-family:Arial\"><span style=\"color:#000000\"> by the<\/span><\/span><\/span><span style=\"font-size:12pt\"><span style=\"font-family:Arial\"><span style=\"color:#000000\"><strong> Percy Mistry Committee, in 2009<\/strong><\/span><\/span><\/span><span style=\"font-size:12pt\"><span style=\"font-family:Arial\"><span style=\"color:#000000\"> by the <\/span><\/span><\/span><span style=\"font-size:12pt\"><span style=\"font-family:Arial\"><span style=\"color:#000000\"><strong>Raghuram Rajan Committee and then in 2013<\/strong><\/span><\/span><\/span><span style=\"font-size:12pt\"><span style=\"font-family:Arial\"><span style=\"color:#000000\">, both in the report of the Financial Sector Legislative Reforms Commission (FSLRC) and the<\/span><\/span><\/span><span style=\"font-size:12pt\"><span style=\"font-family:Arial\"><span style=\"color:#000000\"><strong> Dr. Urjit R. Patel (URP) Committee.<\/strong><\/span><\/span><\/span><\/li>\n<\/ul>\n<\/li>\n<li style=\"list-style-type:disc\"><span style=\"font-size:12pt\"><span style=\"font-family:Arial\"><span style=\"color:#000000\"><strong>Composition of MPC:<\/strong><\/span><\/span><\/span>\n<ul>\n<li style=\"list-style-type:circle\"><span style=\"font-size:12pt\"><span style=\"font-family:Arial\"><span style=\"color:#000000\">There are a total of six members in the committee, three members are from RBI itself and the rest of them are appointed by the Government of India.\u00a0<\/span><\/span><\/span><\/li>\n<li style=\"list-style-type:circle\"><span style=\"font-size:12pt\"><span style=\"font-family:Arial\"><span style=\"color:#000000\">The MPC consists of\u00a0 six members:<\/span><\/span><\/span>\n<ul>\n<li style=\"list-style-type:square\"><span style=\"font-size:12pt\"><span style=\"font-family:Arial\"><span style=\"color:#000000\">RBI Governor (Chairperson)<\/span><\/span><\/span><\/li>\n<li style=\"list-style-type:square\"><span style=\"font-size:12pt\"><span style=\"font-family:Arial\"><span style=\"color:#000000\">RBI Deputy Governor in charge of monetary policy,<\/span><\/span><\/span><\/li>\n<li style=\"list-style-type:square\"><span style=\"font-size:12pt\"><span style=\"font-family:Arial\"><span style=\"color:#000000\">One official nominated by the RBI Board\u00a0<\/span><\/span><\/span><\/li>\n<li style=\"list-style-type:square\"><span style=\"font-size:12pt\"><span style=\"font-family:Arial\"><span style=\"color:#000000\">The Government of India will propose three members [committee chaired by the Cabinet Secretary].\u00a0<\/span><\/span><\/span><\/li>\n<li style=\"list-style-type:square\"><span style=\"font-size:12pt\"><span style=\"font-family:Arial\"><span style=\"color:#000000\">Members of the MPC will serve for four years and are not eligible for reappointment.\u00a0<\/span><\/span><\/span><\/li>\n<li style=\"list-style-type:square\"><span style=\"font-size:12pt\"><span style=\"font-family:Arial\"><span style=\"color:#000000\">The members of the Monetary Policy Committee are appointed for four years.\u00a0<\/span><\/span><\/span><\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<\/li>\n<li style=\"list-style-type:disc\"><span style=\"font-size:12pt\"><span style=\"font-family:Arial\"><span style=\"color:#000000\"><strong>Functions of the MPCL<\/strong><\/span><\/span><\/span>\n<ul>\n<li style=\"list-style-type:circle\"><span style=\"font-size:12pt\"><span style=\"font-family:Arial\"><span style=\"color:#000000\">To target inflation, i.e., to maintain inflation to a certain level (4 % +\/- 2%). The Reserve Bank of India (RBI) is responsible for containing inflation targets at 4% (with a deviation of 2%)\u00a0<\/span><\/span><\/span><\/li>\n<li style=\"list-style-type:circle\"><span style=\"font-size:12pt\"><span style=\"font-family:Arial\"><span style=\"color:#000000\">Price stability is a necessary precondition to sustainable growth.\u00a0<\/span><\/span><\/span><\/li>\n<li style=\"list-style-type:circle\"><span style=\"font-size:12pt\"><span style=\"font-family:Arial\"><span style=\"color:#000000\">To meet the challenges of an increasingly complex economy.<\/span><\/span><\/span><\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<p><span style=\"font-size:12pt\"><span style=\"font-family:Arial\"><span style=\"color:#000000\"><strong><u>Key Highlights of the MPC<\/u><\/strong><\/span><\/span><\/span><\/p>\n<ul>\n<li style=\"list-style-type:disc\"><span style=\"font-size:12pt\"><span style=\"font-family:Arial\"><span style=\"color:#000000\"><strong>MPC Decision on Interest Rates:<\/strong><\/span><\/span><\/span>\n<ul>\n<li style=\"list-style-type:circle\"><span style=\"font-size:12pt\"><span style=\"font-family:Arial\"><span style=\"color:#000000\">The MPC decided to keep the <\/span><\/span><\/span><span style=\"font-size:12pt\"><span style=\"font-family:Arial\"><span style=\"color:#000000\"><strong>policy repo rate <\/strong><\/span><\/span><\/span><span style=\"font-size:12pt\"><span style=\"font-family:Arial\"><span style=\"color:#000000\">under the <\/span><\/span><\/span><span style=\"font-size:12pt\"><span style=\"font-family:Arial\"><span style=\"color:#000000\"><strong>liquidity adjustment facility (LAF) unchanged at 6.50%<\/strong><\/span><\/span><\/span><span style=\"font-size:12pt\"><span style=\"font-family:Arial\"><span style=\"color:#000000\">. The standing deposit facility (SDF) rate remains at 6.25%, while the <\/span><\/span><\/span><span style=\"font-size:12pt\"><span style=\"font-family:Arial\"><span style=\"color:#000000\"><strong>marginal standing facility (MSF) rate and the Bank Rate stay<\/strong><\/span><\/span><\/span><span style=\"font-size:12pt\"><span style=\"font-family:Arial\"><span style=\"color:#000000\"> at 6.75%.<\/span><\/span><\/span><\/li>\n<li style=\"list-style-type:circle\"><span style=\"font-size:12pt\"><span style=\"font-family:Arial\"><span style=\"color:#000000\">These decisions aim to align inflation with the <\/span><\/span><\/span><span style=\"font-size:12pt\"><span style=\"font-family:Arial\"><span style=\"color:#000000\"><strong>medium-term target for consumer price index (CPI) inflation of 4%<\/strong><\/span><\/span><\/span><span style=\"font-size:12pt\"><span style=\"font-family:Arial\"><span style=\"color:#000000\"> within a band of +\/- 2%, while supporting economic growth.<\/span><\/span><\/span><\/li>\n<li style=\"list-style-type:circle\"><span style=\"font-size:12pt\"><span style=\"font-family:Arial\"><span style=\"color:#000000\">The repo rate is the rate through which the <\/span><\/span><\/span><span style=\"font-size:12pt\"><span style=\"font-family:Arial\"><span style=\"color:#000000\"><strong>RBI lends money to commercial banks.<\/strong><\/span><\/span><\/span><\/li>\n<\/ul>\n<\/li>\n<li style=\"list-style-type:disc\"><span style=\"font-size:12pt\"><span style=\"font-family:Arial\"><span style=\"color:#000000\"><strong>Global and Domestic Economic Assessments:<\/strong><\/span><\/span><\/span>\n<ul>\n<li style=\"list-style-type:circle\"><span style=\"font-size:12pt\"><span style=\"font-family:Arial\"><span style=\"color:#000000\"><strong>Global Economy: <\/strong><\/span><\/span><\/span><span style=\"font-size:12pt\"><span style=\"font-family:Arial\"><span style=\"color:#000000\">Global economic activity has been resilient despite high inflation levels, banking system turmoil in some advanced economies, tight financial conditions, and ongoing geopolitical conflicts. Financial stability concerns have led to risk aversion, flights to safety, and increased financial market volatility.<\/span><\/span><\/span><\/li>\n<li style=\"list-style-type:circle\"><span style=\"font-size:12pt\"><span style=\"font-family:Arial\"><span style=\"color:#000000\"><strong>Domestic Economy: <\/strong><\/span><\/span><\/span><span style=\"font-size:12pt\"><span style=\"font-family:Arial\"><span style=\"color:#000000\">The RBI\u2019s MPC marginally revised the GDP growth projection upwards to 6.50 per cent for the current financial year of FY 2023-24, from its earlier estimate of 6.4 per cent.<\/span><\/span><\/span><\/li>\n<\/ul>\n<\/li>\n<li style=\"list-style-type:disc\"><span style=\"font-size:12pt\"><span style=\"font-family:Arial\"><span style=\"color:#000000\"><strong>Inflation:<\/strong><\/span><\/span><\/span>\n<ul>\n<li style=\"list-style-type:circle\"><span style=\"font-size:12pt\"><span style=\"font-family:Arial\"><span style=\"color:#000000\">Headline inflation is moderating, but remains well above the targets of the RBI. These developments have led to heightened volatility in the global financial market. The central bank has projected inflation to marginally decline to 5.2 per cent in FY24.<\/span><\/span><\/span><\/li>\n<\/ul>\n<\/li>\n<li style=\"list-style-type:disc\"><span style=\"font-size:12pt\"><span style=\"font-family:Arial\"><span style=\"color:#000000\"><strong>Liquidity and rupee:\u00a0<\/strong><\/span><\/span><\/span>\n<ul>\n<li style=\"list-style-type:circle\"><span style=\"font-size:12pt\"><span style=\"font-family:Arial\"><span style=\"color:#000000\">India\u2019s current account deficit will remain moderate in Q4 FY23 and also eminently manageable going forward.<\/span><\/span><\/span><\/li>\n<li style=\"list-style-type:circle\"><span style=\"font-size:12pt\"><span style=\"font-family:Arial\"><span style=\"color:#000000\">The RBI will maintain an agile approach for liquidity management to manage the government\u2019s borrowing programme in a non-disruptive manner.<\/span><\/span><\/span><\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<p><span style=\"font-size:12pt\"><span style=\"font-family:Arial\"><span style=\"color:#000000\"><strong><u>Conclusion<\/u><\/strong><\/span><\/span><\/span><\/p>\n<ul>\n<li style=\"list-style-type:disc\"><span style=\"font-size:12pt\"><span style=\"font-family:Arial\"><span style=\"color:#000000\">In conclusion, the RBI\u2019s Monetary Policy Statement for 2023-24 maintains a cautious stance, focusing on balancing inflation targets with supporting economic growth. The MPC will continue monitoring the evolving inflation and growth outlook, adjusting policy as needed in future meetings.<\/span><\/span><\/span><\/li>\n<\/ul>\n<div>\n<table cellspacing=\"0\" style=\"border-collapse:collapse; border:none; table-layout:fixed; width:624px\">\n<tbody>\n<tr>\n<td style=\"border-bottom:1px solid #000000; border-left:1px solid #000000; border-right:1px solid #000000; border-top:1px solid #000000; vertical-align:top\">\n<p><span style=\"font-size:12pt\"><span style=\"font-family:Arial\"><span style=\"color:#000000\"><strong><u>Monetary Policy<\/u><\/strong><\/span><\/span><\/span><\/p>\n<ul>\n<li style=\"list-style-type:disc\"><span style=\"font-size:12pt\"><span style=\"font-family:Arial\"><span style=\"color:#000000\">Monetary policy is adopted by a country to <\/span><\/span><\/span><span style=\"font-size:12pt\"><span style=\"font-family:Arial\"><span style=\"color:#000000\"><strong>control either the interest rate for a short-term borrowing<\/strong><\/span><\/span><\/span><span style=\"font-size:12pt\"><span style=\"font-family:Arial\"><span style=\"color:#000000\">, such as borrowing by banks from each other for meeting their short-term requirements or the money supply, attempting to decrease inflation or the interest rate, ensuring price stability and general trust of the value and stability of the country&#8217;s currency.\u00a0<\/span><\/span><\/span><\/li>\n<li style=\"list-style-type:disc\"><span style=\"font-size:12pt\"><span style=\"font-family:Arial\"><span style=\"color:#000000\">The RBI enforces the monetary policy via <\/span><\/span><\/span><span style=\"font-size:12pt\"><span style=\"font-family:Arial\"><span style=\"color:#000000\"><strong>open market operations, reserve system, credit control policy, bank rate policy, moral persuasion, and numerous other instruments<\/strong><\/span><\/span><\/span><span style=\"font-size:12pt\"><span style=\"font-family:Arial\"><span style=\"color:#000000\">. It&#8217;s by using any of these instruments that lead to changes in the interest rate or the money supply in the economy.\u00a0<\/span><\/span><\/span><\/li>\n<\/ul>\n<p><span style=\"font-size:12pt\"><span style=\"font-family:Arial\"><span style=\"color:#000000\"><strong><u>Types of Monetary Policy\u00a0<\/u><\/strong><\/span><\/span><\/span><\/p>\n<ul>\n<li style=\"list-style-type:disc\"><span style=\"font-size:12pt\"><span style=\"font-family:Arial\"><span style=\"color:#000000\">Monetary policies are seen as <\/span><\/span><\/span><span style=\"font-size:12pt\"><span style=\"font-family:Arial\"><span style=\"color:#000000\"><strong>expansionary or contractionary in nature<\/strong><\/span><\/span><\/span><span style=\"font-size:12pt\"><span style=\"font-family:Arial\"><span style=\"color:#000000\">.\u00a0<\/span><\/span><\/span><\/li>\n<li style=\"list-style-type:disc\"><span style=\"font-size:12pt\"><span style=\"font-family:Arial\"><span style=\"color:#000000\">For example, <\/span><\/span><\/span><span style=\"font-size:12pt\"><span style=\"font-family:Arial\"><span style=\"color:#000000\"><strong>during times of slowdown or a recession<\/strong><\/span><\/span><\/span><span style=\"font-size:12pt\"><span style=\"font-family:Arial\"><span style=\"color:#000000\"> when there&#8217;s an increase in money supply and interest rates are reducing, it indicates an <\/span><\/span><\/span><span style=\"font-size:12pt\"><span style=\"font-family:Arial\"><span style=\"color:#000000\"><strong>expansionary policy.\u00a0<\/strong><\/span><\/span><\/span><\/li>\n<\/ul>\n<p style=\"text-align:center\"><span style=\"font-size:12pt\"><span style=\"font-family:Arial\"><span style=\"color:#000000\"><img decoding=\"async\" src=\"https:\/\/lh5.googleusercontent.com\/adpnt5Sx491c3tWQgxmbvhNL7UhQlkY6EIE-gAjmUFo18CN10ETdPItVr6ITLkPOzHq2vy9NGLwiw8F2f74TNJW6vRSsJPGXmPJQz3F8YSmYhUaCV6twVx2H3GwrYd63hD1F5O9AaGXqOk8NxG6kv-0\" style=\"height:161px; width:610px\" \/><\/span><\/span><\/span><\/p>\n<ul>\n<li style=\"list-style-type:disc\"><span style=\"font-size:12pt\"><span style=\"font-family:Arial\"><span style=\"color:#000000\">On the other hand, contractionary monetary policy is the <\/span><\/span><\/span><span style=\"font-size:12pt\"><span style=\"font-family:Arial\"><span style=\"color:#000000\"><strong>reverse of expansionary policy.<\/strong><\/span><\/span><\/span><\/li>\n<\/ul>\n<p style=\"text-align:center\"><span style=\"font-size:12pt\"><span style=\"font-family:Arial\"><span style=\"color:#000000\"><img decoding=\"async\" src=\"https:\/\/lh5.googleusercontent.com\/ZPCC7j0w3yIXM0Bbi_X4NWv9psUewt2ied9JCj4QJidKBhrXd6xtNlnCUgffWVNRuXNcxEQEN2XrT-8_EKRscVztgAzTHHI0pOra8HecYlnResJF2595FQhoGjRAseCMhlwK2Rzt2_BdjUrK8bczDDQ\" style=\"height:191px; width:610px\" \/><\/span><\/span><\/span><\/p>\n<p>\t\t\t\u00a0<\/p>\n<p><span style=\"font-size:12pt\"><span style=\"font-family:Arial\"><span style=\"color:#000000\"><strong><u>Instruments of Monetary Policy<\/u><\/strong><\/span><\/span><\/span><\/p>\n<ul>\n<li style=\"list-style-type:disc\"><span style=\"font-size:12pt\"><span style=\"font-family:Arial\"><span style=\"color:#000000\"><strong>Repo rate (Repurchasing option rate):<\/strong><\/span><\/span><\/span><span style=\"font-size:12pt\"><span style=\"font-family:Arial\"><span style=\"color:#000000\"> Commercial banks take loans from the Reserve Bank of India (RBI), by keeping securities with RBI. The RBI then charges the bank with a certain interest rate, that interest rate is commonly known as the Repo rate. This is exactly the same manner in which a bank charges customers interest rates on loans and keeps collateral as security.\u00a0<\/span><\/span><\/span><\/li>\n<li style=\"list-style-type:disc\"><span style=\"font-size:12pt\"><span style=\"font-family:Arial\"><span style=\"color:#000000\"><strong>Reverse Repo Rate: <\/strong><\/span><\/span><\/span><span style=\"font-size:12pt\"><span style=\"font-family:Arial\"><span style=\"color:#000000\">The difference between the repo rate and reverse repo rate is that here the RBI borrows money from the commercial banks and the bank charges a rate to RBI. If a bank has extra money, it can store it with the RBI for a short period of time.\u00a0<\/span><\/span><\/span><\/li>\n<li style=\"list-style-type:disc\"><span style=\"font-size:12pt\"><span style=\"font-family:Arial\"><span style=\"color:#000000\"><strong>Standing Deposit Facility (SDF) Rate:<\/strong><\/span><\/span><\/span><span style=\"font-size:12pt\"><span style=\"font-family:Arial\"><span style=\"color:#000000\"> The SDF rate is the interest rate that can be charged by banks to RBI when they park their money with RBI. However, in this, the RBI doesn\u2019t issue any collateral, thus, making it easy for commercial banks who have excess securities and don\u2019t want to overburden themselves. SDF rate is higher than the Reverse Repo Rate.\u00a0<\/span><\/span><\/span><\/li>\n<li style=\"list-style-type:disc\"><span style=\"font-size:12pt\"><span style=\"font-family:Arial\"><span style=\"color:#000000\"><strong>Marginal Standing Facility (MSF) Rate: <\/strong><\/span><\/span><\/span><span style=\"font-size:12pt\"><span style=\"font-family:Arial\"><span style=\"color:#000000\">MSF rate is the interest rate at which the commercial banks can borrow money from the RBI overnight. The loans taken are for emergency circumstances only and saves the bank from volatile situations. MSF rate is always higher than the repo rate.\u00a0<\/span><\/span><\/span><\/li>\n<li style=\"list-style-type:disc\"><span style=\"font-size:12pt\"><span style=\"font-family:Arial\"><span style=\"color:#000000\"><strong>Liquidity Adjustment Facility (LAF):<\/strong><\/span><\/span><\/span><span style=\"font-size:12pt\"><span style=\"font-family:Arial\"><span style=\"color:#000000\"> LAF is the facility which allows the commercial banks to borrow from the RBI or vice versa on a certain repo or reverse repo rate. It is the facility which helps them to manage liquidity.\u00a0<\/span><\/span><\/span><\/li>\n<li style=\"list-style-type:disc\"><span style=\"font-size:12pt\"><span style=\"font-family:Arial\"><span style=\"color:#000000\"><strong>LAF Corridor:<\/strong><\/span><\/span><\/span><span style=\"font-size:12pt\"><span style=\"font-family:Arial\"><span style=\"color:#000000\"> LAF corridor tells the difference between Repo rate and the Reverse Repo Rate. It is the same as the LAF mentioned above. The bank conducts auctions to inject banks with liquidity or to take liquidity from them.\u00a0<\/span><\/span><\/span><\/li>\n<li style=\"list-style-type:disc\"><span style=\"font-size:12pt\"><span style=\"font-family:Arial\"><span style=\"color:#000000\"><strong>Fine-tuning operations<\/strong><\/span><\/span><\/span><span style=\"font-size:12pt\"><span style=\"font-family:Arial\"><span style=\"color:#000000\">: refer to the process of making small adjustments to a system or process to optimize its performance or achieve a specific goal. This can involve adjusting parameters, testing different configurations, and continuously monitoring and refining the system.<\/span><\/span><\/span><\/li>\n<li style=\"list-style-type:disc\"><span style=\"font-size:12pt\"><span style=\"font-family:Arial\"><span style=\"color:#000000\"><strong>Statutory Liquidity Ratio (SLR):<\/strong><\/span><\/span><\/span><span style=\"font-size:12pt\"><span style=\"font-family:Arial\"><span style=\"color:#000000\"> It is the amount of funds that banks are required to maintain in the form of liquid assets such as cash, gold, or government securities, as a percentage of their net demand and time liabilities (NDTL). It is a tool used by central banks to regulate the economy by controlling the credit flow in the system.<\/span><\/span><\/span><\/li>\n<li style=\"list-style-type:disc\"><span style=\"font-size:12pt\"><span style=\"font-family:Arial\"><span style=\"color:#000000\"><strong>Cash Reserve Ratio (CRR):<\/strong><\/span><\/span><\/span><span style=\"font-size:12pt\"><span style=\"font-family:Arial\"><span style=\"color:#000000\"> Cash Reserve Ratio is the minimum amount of liquidity that a bank is supposed to hold. Liquidity is the amount of cash that financial institutions have. The CRR is regulated and imposed by the RBI.\u00a0<\/span><\/span><\/span><\/li>\n<li style=\"list-style-type:disc\"><span style=\"font-size:12pt\"><span style=\"font-family:Arial\"><span style=\"color:#000000\"><strong>Open Market Operations (OMO)<\/strong><\/span><\/span><\/span><span style=\"font-size:12pt\"><span style=\"font-family:Arial\"><span style=\"color:#000000\">: Open Market Operations is how the RBI balances the security and liquidity of banks. If there is excess liquidity, RBI will suck liquidity and release securities, whereas if securities are too high, it will take securities and inject liquidity.\u00a0<\/span><\/span><\/span><\/li>\n<\/ul>\n<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<\/div>\n<p><span style=\"font-size:12pt\"><span style=\"font-family:Arial\"><span style=\"color:#000000\">Source: <\/span><\/span><\/span><a href=\"https:\/\/indianexpress.com\/article\/business\/banking-and-finance\/rbi-monetary-policy-key-takeaways-mpc-statement-announced-today-8541707\/\" style=\"text-decoration:none\" target=\"_blank\" rel=\"noopener\"><span style=\"font-size:12pt\"><span style=\"font-family:Arial\"><span style=\"color:#1155cc\"><u>IE<\/u><\/span><\/span><\/span><\/a><\/p>\n","protected":false},"excerpt":{"rendered":"<p>In News The Reserve Bank of India held its first bi-monthly monetary policy of 2023-24. What is the Monetary Policy Committee? About:\u00a0 The Monetary Policy Committee (MPC) is a committee of the Central Bank in India (Reserve Bank of India), headed by its Governor, which is entrusted with the task of fixing the benchmark policy [&hellip;]<\/p>\n","protected":false},"author":1,"featured_media":980,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[21],"tags":[26,46],"class_list":["post-979","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-current-affairs","tag-gs-3","tag-indian-economy-related-issues"],"acf":[],"jetpack_featured_media_url":"https:\/\/wp-images.nextias.com\/cdn-cgi\/image\/format=auto\/ca\/uploads\/2023\/07\/1221024Screenshot_6.png","_links":{"self":[{"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/posts\/979","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/comments?post=979"}],"version-history":[{"count":0,"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/posts\/979\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/media\/980"}],"wp:attachment":[{"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/media?parent=979"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/categories?post=979"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/tags?post=979"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}