RBI Sixth Bi-Monthly Monetary Policy 

Reserve Bank of India released the 6th Bi-Monthly Monetary Policy statement on 7 February 2019 in Mumbai. The committee is headed by Shaktikanta Das. This was the first MPC meeting chaired by new RBI Governor Shaktikanta Das. The meeting is decided on the basis of an assessment of the current and evolving macroeconomic situation. RBI had reduced the Policy Rates by 25 basis points with immediate effect. Monetary Policy committee votes 4:2 in favour of the rate cut.

• Reduce the Policy Repo Rate under the Liquidity Adjustment Facility (LAF) by 25 basis points from 6.5% to 6.25% with immediate effect.

• The Reserve Repo Rate under the Liquidity Adjustment Facility (LAF) by 25 basis points from 6.25% adjusted to 6.00% and the Marginal Standing Facility (MSF) Rate and Bank Rate to 6.5%

• The MPC also decided to change the monetary policy stance from calibrated tightening to neutral, with the objective of achieving the medium-term target for consumer price index (CPI) inflation of 4% within a band of +/- 2% while supporting growth.

Policy Rates

Reserve Rates

Inflation Rates:

The inflation rate is estimated at 3.2%-3.4% in the first half of the year 2019-20 and 3.9% in the third quarter of 2019-20.

GDP Growth Rates:

Gross Domestic Product (GDP) Growth for the year 2018-19 in December was projected at 7.4%, while the Gross Domestic Product (GDP) Growth is at 7.2-7.4% in the first half of the year 2019-20 and 7.5% in the third quarter of 2019-20.

On the supply side, the FAE has placed the growth of real gross value added (GVA) at 7% in 2018-19 as compared with 6.9% in 2017-18.

Monetary Policy

Objective-    To control the money supply (Inflation) in the economy and Maintain GDP growth. It is designed by RBI. It is reviewed in every 2 months.

Tools/ Policy Rate

Repo Rate

The rate at which commercial bank borrow money from RBI is called Repo Rate. It is for short term (2 to 14 days).

Reserve Repo Rate

Commercial Banks park the extra money to the RBI and RBI gives some rate of interest on that parked money and this rate is known as Reserve Repo Rate.

Marginal Standing Facility (MSF)

Every Commercial Bank can borrow money from RBI upto two percentage of its total deposits (NDTL) for overnight or one day is called the Marginal Standing Facility( MSF) Rate.

Bank Rate

The rate at which  Commercial Banks borrow money from RBI for long term (>= 1 year). It is called Rediscount Rate or Bank Rate.

Cash Reserve Ratio (CRR)

Every Commercial Bank has to maintain a certain percentage of its total deposit in form of cash only with RBI is called Cash Reserve Ratio (CRR).

Statutory Liquidity Ratio (SLR)

Every Commercial Bank has to maintain a certain percentage of its total deposit in form of cash, gold and government securities (Treasury Bill) with itself is called Statutory Liquidity Ratio (SLR).

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