Things to Know about – 3rd Bi Monthly Policy 2017-2018 of RBI

RBI ( Reserve Bank of India ) has released the 3rd Bi monthly policy for the year 2017-2018. There has been little changes in the percentages of various rates in the bi Monthly rates.

Monetary policy is the process by which monetary authority of a country, generally central bank controls the supply of money in the economy by its control over interest rates in order to maintain price stability and achieve high economic growth. In India, the central monetary authority is the Reserve Bank of India (RBI). It is so designed as to maintain the price stability in the economy.

Here we are with an elaborate list of the changed rates and we are sure this will help you in the preparations for the examinations.

Why RBI reviews monetary policies Bi Monthly ?

As  you all know this is the 3rd Bi Monthly Monetary Policy for the year 2017 – 2018.

• Monetary policy is flexible and can be changed easily
• The effect of monetary policy is faster and more immediately perceptible than the fiscal policy.

Monetary Policy Committee

The Monetary Policy committee is assigned the greatest task of fixing the Repo rate required to contain inflation in the specified targeted level. The Reserve Bank of India Act, 1934 (RBI Act) was amended by the Finance Act, 2016, to provide for a statutory and institutionalized framework for a Monetary Policy Committee for maintaining price stability , while considering the objective of growth.

Monetary policy is the process by which monetary authority of a country, generally central bank controls the supply of money in the economy by its control over interest rates in order to maintain price stability and achieve high economic growth. In India, the central monetary authority is the Reserve Bank of India (RBI). It is so designed as to maintain the price stability in the economy.

Total Members of the Monetary Policy Committee : 6

Members from the RBI – 3

Other Members of the Monetary Policy Committee – 3 *

* These members will be appointed by the Central Government.

Members of the Monetary Policy Committee :

• Dr. Chetan Ghate, Professor, Indian Statistical Institute
• Dr. Pami Dua, Director, Delhi School of Economics
• Dr. Ravindra H. Dholakia, Professor, Indian Institute of Management, Ahmedabad
• Dr. Michael Debabrata Patra, Executive Director (the officer of the Reserve Bank nominated by the Central Board under Section 45ZB(2)(c) of the Reserve Bank of India Act, 1934)
• Dr. Viral V. Acharya, Deputy Governor in-charge of monetary policy
• Chaired by Dr. Urjit R. Patel, Governor.

(Information as in the Minutes of the Monetary Policy Committee Meeting April 5-6, 2017 in RBI website)

Policy Rates :

• Bank Rate

The bank rate, also known as the discount rate, is the rate of interest charged by the RBI for providing funds or loans to the banking system normally for long term. This banking system involves commercial and co-operative banks, Industrial Development Bank of India, IFC, EXIM Bank, and other approved financial institutes. Funds are provided either through lending directly or discounting or buying money market instruments like commercial bills and treasury bills. Increase in Bank Rate increases the cost of borrowing by commercial banks which results in the reduction in credit volume to the banks and hence declines the supply of money. Increase in the bank rate is the symbol of tightening of RBI monetary policy.

• Repo Rate

The (fixed) interest rate at which the Reserve Bank provides overnight liquidity to banks against the collateral of government and other approved securities under the liquidity adjustment facility (LAF).

• Reverse Repo Rate

The (fixed) interest rate at which the Reserve Bank absorbs liquidity, on an overnight basis, from banks against the collateral of eligible government securities under the LAF.

• Marginal Standing Facility Rate (MSF)

A facility under which scheduled commercial banks can borrow additional amount of overnight money from the Reserve Bank by dipping into their Statutory Liquidity Ratio (SLR) portfolio up to a limit [currently two per cent of their net demand and time liabilities deposits (NDTL)] at a penal rate of interest. This provides a safety valve against unanticipated liquidity shocks to the banking system. The current MSF is 6.25%.

• Cash Reserve Ratio (CRR)

Cash Reserve Ratio is a certain percentage of bank’s Net Demand Time Liabilities (NDTL) which banks are required to keep with RBI in the form of cash balances. Higher the CRR with the RBI lower will be the liquidity in the system and vice versa. RBI is empowered to vary CRR between 15 percent and 3 percent. But as per the suggestion by the Narsimham committee Report the CRR was reduced from 15% in the 1990 to 5 percent in 2002. The Current CRR is 4.

• Statutory Liquidity Ratio (SLR)

The share of net demand and time liabilities that banks must maintain in safe and liquid assets, such as, government securities, cash, and gold with themselves. The Current SLR is 20.

Other Related Articles :

MONETARY POLICY – Short Notes – Source: RBI

FUNCTIONS OF THE RESERVE BANK OF INDIA