RBI first Bi-monthly monetary Policy 2018-19 | Important Highlights

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RBI first Bi-monthly Monetary Policy 2018-19

RBI first Bi-monthly Monetary Policy. Reserve Bank of India (RBI) has announced its first Bi-Monthly Monetary Policy Rates for 2018-19 in Mumbai today. The 1st Bi-monthly policy has been released based on the assessment of the Monetary Policy Committee of the Reserve Bank of India (RBI). The Monetary Policy Rates are very important for the upcoming IBPS, SBI, NABARD & SSC Exam 2018, especially Banking awareness.

The Monetary Policy Committee (MPC) is likely to stick with its ‘neutral’ stance and flag uncertainty over the inflation outlook beyond June due to factors such as oil prices and the government’s promise of increasing the minimum purchase price of foodgrains from farmers.

A Reuters poll showed all 61 respondents expected the RBI to keep the repo rate steady at 6.00 percent, its lowest level since November 2010. A majority of the economists polled expect the RBI to only start raising rates in early 2019.

RBI first Bi-monthly monetary Policy – Current Policy Rates & Reserve Ratios

Policy Repo Rate 6.00 %
Reverse Repo Rate 5.75 %
Marginal Standing Facility Rate 6.25 %
Bank Rate 6.25 %
CRR 4%
SLR 19.5 %

               RBI first Bi-monthly monetary Policy 2018-19 – Important Highlights

  • Keep the policy repo rate under the liquidity adjustment facility (LAF) unchanged at 6.0 percent.
  • The reverse repo rate under the LAF remains at 5.75 percent.
  • The marginal standing facility (MSF) rate and the Bank Rate at 6.25 percent.
  • The decision of the MPC is consistent with the neutral stance of monetary policy in consonance.
  • Cash Reserve Ratio (CRR) remains unchanged at 4%.
  • As per RBI’s report, with the objective of achieving the medium-term target for consumer price index (CPI) inflation of 4 percent within a band of +/- 2 percent, while supporting growth.
  • The RBI will also be mindful of the pace of India’s economic recovery as banks are likely to go slow on lending after a loan-fraud scandal worth over $2 billion at the country’s second largest state lender Punjab National Bank

RBI Bi-monthly monetary Policy 2018-19 – Important Dates

Policy Statement Dates of Release
RBI Second Bi-monthly Monetary Policy Statement for 2018-19 6th June 2018
RBI Third Bi-monthly Monetary Policy Statement for 2018-19 1st August 2018
RBI Fourth Bi-monthly Monetary Policy Statement for 2018-19 4th October 2018
RBI Fifth Bi-monthly Monetary Policy Statement for 2018-19 6th December 2018
RBI Sixth Bi-monthly Monetary Policy Statement for 2018-19 6th Feb 2019

Monetary policy is how central banks manage the money supply to guide healthy economic growth. The money supply is credit, cash, checks, and money market mutual funds. The most important of these is credit, which includes loans, bonds, mortgages, and other agreements to repay.

Objectives of Monetary Policy – The primary objective of central banks is to manage inflation. The second is to reduce unemployment once inflation has been controlled.

RBI Policy Rates & Reserve Ratios

  • Repo Rate – It is the rate at which RBI lends money to commercial banks in the event of any shortfall of funds. It is the rate of interest which RBI implements on the short-term loans, i.e., from a period ranging from 2 days to 3 months (90 Days). It is used by monetary authorities to control inflation. A reduction in the repo rate helps banks get money at a cheaper rate and vice versa.
  • Reverse Repo Rate – It is the rate at which the RBI borrows money from commercial banks. Banks are always happy to lend money to the RBI since their money is in safe hands with a good interest. An increase in reverse repo rate can prompt banks to park more funds with the RBI to earn higher returns on idle cash. It is also a tool which can be used by the RBI to drain excess money out of the banking system.
  • Marginal Standing Facility (MSF) – A facility under which scheduled commercial banks can borrow additional amount of overnight money from the Reserve Bank by dipping into their SLR portfolio up to a limit (currently two percent of their net demand and time liabilities deposits) at a penal rate of interest (currently 100 basis points above the repo rate). This provides a safety valve against unanticipated liquidity shocks to the banking system. MSF rate and reverse repo rate determine the corridor for the daily movement in short-term money market interest rates.
  • Bank Rate – Bank rate is the rate of interest implemented by RBI when it lends money to a public sector bank on a long-term basis, i.e. from a period ranging from 90 days to 1 year. Under this definition, Bank Rate and Repo Rate seem to be similar terms because both are the interest rates at which RBI lends money to banks.
  • Cash Reserve Ratio (CRR) – It is the amount of funds that the banks have to keep with the RBI. Current CRR is 4%.
  • For example  When a bank’s deposits increase by Rs100, and if the cash reserve ratio is 4%, the banks will have to hold additional Rs 4 with RBI and Bank will be able to use only Rs 96 for investments and lending / credit purpose. Therefore, higher the ratio (i.e. CRR), the lower is the amount that banks will be able to use for lending and investment.
  • Statutory Liquidity Ratio (SLR) –  It indicates the minimum percentage of deposits that the bank has to maintain in form of gold, cash or other approved securities.

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