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Along expected lines, the Reserve Bank of India Governor hiked the repo rate by 25 basis points in the October monetary policy review today.
The repo rate is now at 7.75 per cent. He had also raised it by 25 bps in the mid-quarter review in September.
Repo rate is the rate at which banks borrow short term funds from RBI.
Inflation has been on the upswing during the past few months. Wholesale price index (WPI) inflation touched 6.46 per cent in September while consumer price index inflation was at 9.84 per cent. Both these measures have been way beyond the comfort level of the RBI.
The repo rate is now at 7.75 per cent. He had also raised it by 25 bps in the mid-quarter review in September.
Repo rate is the rate at which banks borrow short term funds from RBI.
Inflation has been on the upswing during the past few months. Wholesale price index (WPI) inflation touched 6.46 per cent in September while consumer price index inflation was at 9.84 per cent. Both these measures have been way beyond the comfort level of the RBI.
MSF rate cut by 25 bps
The Governor has also cut the marginal standing facility (MSF) rate by 25 bps to 8.75 per cent. The corridor between the repo rate and the MSF rate is now back to 100 bps signalling the return to normalcy in currency markets.
The MSF is an emergency window that banks borrow from when faced with a funds crunch.
The MSF is an emergency window that banks borrow from when faced with a funds crunch.
Holds CRR
The RBI has kept cash reserve ratio (CRR) unchanged at 4.0 per cent of deposits and increased the liquidity provided through term repos of 7-day and 14-day tenor from 0.25 per cent of deposits of the banking system to 0.5 per cent with immediate effect.
The RBI said that with the more recent upturn of inflation, and elevated inflation expectations anticipating the pass-through of exchange rate depreciation and on going adjustment in administered fuel prices, it is important to break the spiral of rising price pressures to curb the erosion of financial savings and strengthen the foundations of growth.
The RBI said that with the more recent upturn of inflation, and elevated inflation expectations anticipating the pass-through of exchange rate depreciation and on going adjustment in administered fuel prices, it is important to break the spiral of rising price pressures to curb the erosion of financial savings and strengthen the foundations of growth.
Five pillars of building growth
The Reserve Bank also said that its developmental measures over the next few quarters will be built on five pillars. These are:
a. Clarifying and strengthening the monetary policy framework
b. Strengthening banking structure through new entry, branch expansion, encouraging new varieties of banks, and moving foreign banks into better regulated organisational forms.
c. Broadening and deepening financial markets and increasing their liquidity and resilience so that they can help absorb the risks entailed in financing India’s growth.
d. Expanding access to finance to small and medium enterprises, the unorganised sector, the poor, and remote and underserved areas of the country through measures to foster financial inclusion.
e.Improving the system’s ability to deal with corporate distress and financial institution distress by strengthening real and financial restructuring as well as debt recovery.
Source: thehindubusinessline
a. Clarifying and strengthening the monetary policy framework
b. Strengthening banking structure through new entry, branch expansion, encouraging new varieties of banks, and moving foreign banks into better regulated organisational forms.
c. Broadening and deepening financial markets and increasing their liquidity and resilience so that they can help absorb the risks entailed in financing India’s growth.
d. Expanding access to finance to small and medium enterprises, the unorganised sector, the poor, and remote and underserved areas of the country through measures to foster financial inclusion.
e.Improving the system’s ability to deal with corporate distress and financial institution distress by strengthening real and financial restructuring as well as debt recovery.
Source: thehindubusinessline
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