Table of Contents
- Introduction:
- What is Monetary Policy?
- Key Tools of Monetary Policy:
- Objectives of RBI Monetary Policy:
- Impact of Monetary Policy:
- RBI MPC Meet Today Highlights:
- RBI MPC Meeting 2024 Highlights: Here are the key highlights of RBI policy:
- RBI MPC Meeting 2024 Live: George Muthoot on RBI Policy
- RBI MPC Meeting 2024 Live: Expect rate cuts in Q3FY25: Parijat Agrawal of Union Mutual Fund
Introduction:
The Reserve Bank of India (RBI) plays a pivotal role in steering the country's economy through its monetary policy decisions. These decisions are crucial in influencing key economic indicators such as inflation, growth, employment, and exchange rates. Understanding the RBI's monetary policy and its implications is essential for businesses, investors, policymakers, and the general public alike.
What is Monetary Policy?
Monetary Policy refers to the actions taken by a central bank, such as the RBI in India, to regulate the supply of money, interest rates, and credit conditions to achieve specific economic objectives. The primary goal of monetary policy is to maintain price stability while also supporting economic growth and employment.
Key Tools of Monetary Policy:
The RBI employs various tools to implement monetary policy effectively. These tools include:
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Interest Rates:
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One of the primary tools used by the RBI is the adjustment of key interest rates, such as the repo rate, reverse repo rate, and the marginal standing facility (MSF) rate. Changes in these rates influence borrowing and lending rates in the economy, affecting consumer spending, investment, and overall economic activity.
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Open Market Operations (OMOs):
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The RBI conducts OMOs by buying and selling government securities in the open market. By doing so, the central bank aims to manage liquidity in the banking system, thereby impacting short-term interest rates.
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Cash Reserve Ratio (CRR):
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Banks are required to maintain a certain proportion of their deposits as reserves with the central bank. The RBI can adjust the CRR to control the amount of funds available for lending by banks, thereby influencing liquidity and credit conditions in the economy.
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Statutory Liquidity Ratio (SLR):
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Similar to the CRR, the SLR mandates banks to maintain a certain percentage of their deposits in specified liquid assets such as government securities. Adjustments to the SLR can affect liquidity in the banking system and credit creation.
Objectives of RBI Monetary Policy:
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Price Stability:
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Controlling inflation within a target range is a primary objective of the RBI. By managing inflation, the central bank seeks to preserve the purchasing power of the currency and promote economic stability.
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Economic Growth:
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The RBI strives to support sustainable economic growth by maintaining conducive monetary conditions. Lower interest rates can stimulate borrowing and investment, thereby boosting economic activity.
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Financial Stability:
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Ensuring the stability of the financial system is another crucial objective of the RBI's monetary policy. The central bank monitors systemic risks and takes proactive measures to safeguard the stability and resilience of the financial sector.
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Exchange Rate Management:
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While the RBI primarily focuses on domestic objectives, it also intervenes in the foreign exchange market to stabilize the value of the rupee and maintain external competitiveness.
Impact of Monetary Policy:
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Businesses:
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Changes in interest rates and credit conditions affect the cost of capital for businesses, influencing investment decisions, production levels, and profitability.
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Consumers:
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Monetary policy influences borrowing costs for consumers, including home loans, auto loans, and personal loans. Lower interest rates can stimulate consumer spending and demand for durable goods.
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Investors:
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Monetary policy decisions impact asset prices, including stocks, bonds, and real estate. Investors adjust their portfolios in response to changes in interest rates and economic outlook, affecting financial markets' performance.
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Government:
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The government's fiscal policy and the RBI's monetary policy often complement each other in achieving macroeconomic stability and growth objectives. Coordination between fiscal and monetary authorities is essential for optimal policy outcomes.
RBI MPC Meet Today Highlights:
The Reserve Bank of India (RBI) announced its decision on short-term lending rate, or repo rate on Friday (April 5) and kept it unchanged at 6.5 per cent. Governor Shaktikanta Das, who heads the six-member Monetary Policy Committee (MPC), addressed the post policy presser later today.
“The Monetary Policy Committee (MPC) met on 3rd, 4th and 5th April 2024. After a detailed assessment of the evolving macroeconomic and financial developments and the outlook, it decided by a 5 to 1 majority to keep the policy repo rate unchanged at 6.50 per cent,” Governor Das in his address.
The MPC panel will next meet on June 5-7, 2024, a week before the US Federal Reserve’s FOMC meet. Analysts’ expect rate continuation decision in June as well.
Earlier, analysts’ expected India’s central bank to leave the rate unchanged at 6.5 per cent and continue its ‘withdrawal of accommodation’ stance as it maintains a cautious stance on rate adjustments like its peers in advanced economies. India’s central bank has kept the rate unchanged after it, for the last time, indulged in a rate hike cycle in February 2023.
RBI MPC Meeting 2024 Highlights: Here are the key highlights of RBI policy:
RBI MPC Meeting 2024 Highlights: The RBI Governor Shaktikanta Das announced the first monetary policy of FY25. Here are the key highlights of RBI April policy:
Policy Measures:
- Repo rate kept unchanged at 6.5%
- Policy stance of ‘withdrawal of accommodation’ maintained
- GDP growth forecast for FY25 at 7%. The quarterly projections are - Q1 at 7.1%; Q2 at 6.9%; Q3 at 7% and Q4 at 7%.
- CPI inflation forecast for FY25 at 4.5%. Here are detailed inflation forecast: Q1 at 4.9%; Q2 at 3.8%; Q3 at 4.6% and Q4 at 4.5%
Non-policy measures:
- Scheme for trading of sovereign green bonds at IFSC to be announced
- Introduction of a mobile app to access RBI’s Retail Direct Scheme for participation in GSec market
- Draft circular for LCR framework for banks to be issued shortly
- Dealing in rupee interest rate derivate products for all small finance banks
- Enabling UPI for Cash Deposit Facility
- UPI access for Prepaid Payment Instruments (PPIs) through third-party applications
- Distribution of CBDCs through Non-bank Payment System Operators
Many analysts believe that RBI is unlikely to cut the repo rate in near future as well unless the 4 per cent target for inflation is achieved on a durable basis. India’s Reserve Bank has been mandated to keep the inflation rate within the target range of 2-6 per cent.
Meanwhile, Indian benchmark indices opened flat ahead of RBI MPC policy outcome today. BSE Sensex inched 0.08 per cent up while Nifty slipped 0.13 per cent. The indices continue to trade flat.
RBI MPC Meeting 2024 Live: George Muthoot on RBI Policy
RBI MPC Meeting 2024 Live: While the RBI does remain cautious on the inflation front, we believe moderating inflationary pressures, coupled with the realization of normal monsoon may open up the possibility of rate cuts by the RBI in the first half of fiscal 2024-25. We are encouraged by the resilience of the global economy, continued economic growth momentum in India, coupled with relative rupee stability. Steady pick up in investment activity and strengthening of rural demand conditions bode well for the economy and further fuels our optimism towards steady demand for gold loans, vehicle loans and home loans during the year, said George Muthoot, MD, Muthoot Finance.
RBI MPC Meeting 2024 Live: Expect rate cuts in Q3FY25: Parijat Agrawal of Union Mutual Fund
RBI MPC Meeting 2024 Live: We expect rate cuts in the third quarter of FY25, possibly after the US FOMC starts rate cut cycle. RBI is expected to keep liquidity neutral so that further transmission of higher rates can continue. There is a possibility of modification of the LCR framework going forward which may augur well for bonds, said Parijat Agrawal, Head – Fixed Income, Union Mutual Fund.
