Monetary policy is a quarterly presented tool of RBI to control the market and economic situation in the nation. The RBI sets various rates of borrowing and lending and presents in various measures to boost the economy and control the factors that deviate the development or become a burden for the nation.
This time the monetary policy was pretty special because of the second wave of COVID hitting the public. On 7th April Shaktikanta Das presented the monetary policy. As per the monetary policy there were some major highlights presented. They are:
| PRODUCT | RATE |
| Repo Rate | 4.00% |
| Reverse Repo Rate | 3.35% |
| CRR | 3.00% |
| SLR | 18% |
| Bank Rate | 4.25% |
| Marginal Standing Facility Rate | 4.25% |
Analysis Of The Rates
The RBI always makes modifications in the rates provided so that the balance between the lending and borrowing is maintained in the market.
REVERSE REPO RATE AND REPO RATE
Before commencing the analysis of these banking rates lets decode them – (reverse repo rate and repo rate). These are the most important rates in the market; they maintain the borrowing and lending equilibrium between the banks so that the general public can get loans at a cheaper rate or at a higher rate based on the market situation. Let’s understand how ?
REPO RATE is charged from commercial banks by the central bank of India. The rate decides the payment of interest by commercial banks to get loans from the RBI. Reverse repo rate is the vice versa situation of Repo rate. This is the rate at which RBI borrows from Commercial banks. These rates work hand in hand. That is, rates help the RBI can keep track of liquidity in the market. When liquidity is scarce in the market the RBI decreases the repo rate and hence increases the flow in the market of money. Such is the tactic used by RBI to control the movements of business in the market.
The current REPO Rate and reverse REPO rate provided by RBI were unchanged from the previous time. This means that the equilibrium in the market is constant and the business houses and people are doing well in terms of fulfilling the liquidity needs of the nations. Hence the money is changing hands in a required manner.
BANK RATE AND MSF RATE
Bank rate is the rate at which banks can internally give loans to each other and the MSF or marginal standing facility is the rate at which RBI gives out money to banks (Scheduled) against the pleading of government securities. These rates are important as they decide the expenses ratio of various banks. The more the interest payment to other banks or RBI more, lesser would be profit ratio of the banks. The Bank rate and MSF rate has remained unchanged as well. The rate applied in both the situations is 4.25%.
CRR and SLR
These rates decide the business expansion of banks. The rates are important for any bank to increase the customer base or increase the expansion of its banking operations. The CRR is the cash reserve ratio which is a cash facility or liquidity requirement to be kept with banks. The ratio is important as the more rate to be kept as liquid the lesser disbursement of loans or cash used for expansion. Also it is mandatory that on any given day if a customer demands money for withdrawal of a higher amount it is possible for the banks to provide him or her with his requirements. For any bank it is important to maintain trust of customers in it and hence this does the same. The CRR ratio kept in current policy is 3%.
SLR on other hand is the rate at which the bank needs to keep investment in the form of cash or fold or reserves so that in a situation of crisis the bank has extra cash available with it. The RBI keeps a note of this reserve as well so that every bank has required reserves to tackle any emergency situations. The rate is 18%. Hence banks have to keep aside 18% plus 3% CRR equalling to 21% of their money aside in firm of liquidity and reserves. The rest money is now available to disburse in form of loans.
These rates keep a strict note on the bank’s business. It also keeps track of the amount of loan disbursement and risk portfolio of banks indirectly.
OTHER DECISIONS AND ANNOUNCEMENTS
The Inflation rate revised by RBI this year is 5.1%. The nation would be hit by inflation at this rate this year. The CPI inflation rate is the measure of the cost increase or decrease on the price of goods and commodities. Hence the goods and services will become expensive by 5.1% this year.
GDP announcements indicate that the growth of the country will be done at 10.5%. Hence the nation is set to achieve growth at the rate of 10.5% in business and economy. The RBI also announced that it will provide 22 Lakh crore Rs of borrowing to the states and centre and hence maintain the liquidity in the system.
The last announcement made was regarding NEFT and RTGS facility. The RBI said that the banks will work beyond their capacity for completion of these facilities towards the customers.
