The six-member Monetary Policy Committee (MPC) voted unanimously to keep the repo rate unchanged at 4 per cent. MPC committee keeps the reverse repo rate unchanged at 3.35 per cent as Russia’s invasion of Ukraine added to a rise in inflation.
What is the Significance of this Monetary Policy Review?
What is Standing Deposit Facility & Its Role?
§ This provides a safety valve against unanticipated liquidity shocks to the banking system.
§ The aim of term repo is to help develop the interbank term money market, which in turn can set market based benchmarks for pricing of loans and deposits, and hence improve transmission of monetary policy.
§ The RBI also conducts variable interest rate reverse repo auctions, as necessitated under the market conditions.
§ Surplus liquidity of a more enduring nature arising from large capital inflows is absorbed through sale of short-dated government securities and treasury bills.
§ The cash so mobilised is held in a separate government account with the RBI.
§ This rate has been aligned to the MSF rate and, therefore, changes automatically as and when the MSF rate changes alongside policy repo rate changes.
§ Changes in SLR often influence the availability of resources in the banking system for lending to the private sector.
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