Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) decided to keep the repo rate unchanged at 6.5% for the 11th bi-monthly review in a row.
- CRR decreased: The RBI reduced the Cash Reserve Ratio (CRR) for banks by 50 basis points to 4% after a gap of 2.5 years, aiming to support growth
- Reason: Persistent inflation and slowing growth momentum.
Monetary Policy Committee
Important Terms for Prelims:
- Repo Rate:
- Repo rate is the rate at which the central bank of a country (Reserve Bank of India 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:
- The interest rate paid by the RBI to commercial banks when they park their excess liquidity with the RBI. It is the exact opposite of the repo rate.
- Standing Deposit Facility (SDF):
- The SDF is a liquidity window through which the RBI will give banks an option to park excess liquidity with it.
- It is different from the reverse repo facility in that it does not require banks to provide collateral while parking funds.
- Marginal Standing Facility Rate:
- MSF is a window for scheduled banks to borrow overnight from the RBI in an emergency situation when interbank liquidity dries up completely.
- Under interbank lending, banks lend funds to one another for a specified term.
- Bank Rate:
- It is the rate charged by the RBI for lending funds to commercial banks.
- CRR: (Cash Reserve Ratio)
- Under CRR, the commercial banks have to hold a certain minimum amount of deposit (NDTL) as reserves with the central bank.
- SLR:(Statutory Liquidity Ratio (18%))
- Statutory Liquidity Ratio or SLR is the minimum percentage of deposits that a commercial bank has to maintain in the form of liquid cash, gold or other securities.
