RBI Monetary Policy: The Reserve Bank of India (RBI) recently maintained the status quo in policy rates as the Monetary Policy Committee (MPC) voted unanimously to keep the policy repo rate at 4% to keep the stance accommodative.

Key Points:

• While announcing the Bi-monthly policy RBI Governor Shaktikant Das said, MSF rate and bank rate will remain unchanged at 4.25%.
• Reverse repo rate will also remain unchanged at 3.35%.
• MPC has voted 5-1 to continue accommodative monetary policy stance as long as necessary to revive and sustain growth and mitigate impact of #COVID19 on the economy, while ensuring inflation remains within target.
• He projected real GDP growth at 9.2% for 2021-22 and said that it is modestly above level of GDP for 2019-20. Real GDP growth for 2022-23 was projected at 7.8%.

Other announcements:

• He announced that Variable Rate Repo operations of varying tenures will henceforth be conducted as and when warranted.
• Variable rate repos and variable rate reverse repos of 14-day tenures will operate as the main liquidity management tool.
• He informed that from March 1, 2022, fixed rate reverse repo and MSF operations will be available only during 5.30 PM to 11.59 PM on all days, instead of from 9.00 AM to 11.59 PM.
• He also announced some additional measures as follows:-
  1. Extension of On-tap Liquidity Facilities for Emergency Health Services and Contact-intensive Sectors
  2. Voluntary retention route (VRR) - Enhancement of Limits
  3. Review of Credit Default Swaps (CDS) Guidelines
  4. Permission for Banks to deal in Foreign Currency Settled - Rupee Derivatives Market etc.

Difference between Repo rate and reverse repo rate:

• Repo rate is the rate at which the RBI lends to banks, while reverse repo rate is the rate at which it borrows from banks.

What is monetary policy?

• Monetary Policy is the central bank’s policy which uses the monetary instruments like Repo rate, Reverse repo rate, Liquidity Adjustment Facility and many others, to achieve the goals stated in the Act.
• In India, the Reserve Bank of India (RBI) has been given the responsibility of conducting monetary policy as mandated under the Reserve Bank of India Act, 1934.
• The monetary policy has the prime objective of maintaining the price stability in India along with the objective of growth.