RBI Monetary policy

Urjit Patel- RBI Governor

The Reserve Bank of India today kept the repo rate(rate at which RBI loans short term funds to banks) unchanged at 6.25 percent and hiked the reverse repo rate(rate at which RBI borrows from banks) by 25 basis points to 6 percent. Inflation seen averaging 4.5 percent in the first half of this year and 5 percent in the second half. This is above the 4 percent which the RBI is targeting. Economy estimated to grow 7.4 percent this year, versus an estimated 6.7 percent last year. The RBI will shortly come out with a comprehensive plan to fix the bad loan problem, and also revive credit growth. At higher reverse repo, the central bank would suck cash from the system to control demand and cool prices. It will also encourage banks to park excess funds(they got from the deposit of outlawed old Rs 500 and Rs 1000 notes between November 8 and December 30, 2016.) with the RBI that will fetch higher returns.

Current rates:

Policy rates

Repo rate                                         6.25%

Reverse repo rate                             6.00%

Marginal Standing Facility(MSF)   6.50%

Bank Rate                                        6.50%

Reserve ratios

Cash Reserve Ratio(CRR)                    4.00%

Statutory Liquidity  ratio(SLR)           20.50%