The Board in its meeting surveyed the current economic situation and global and domestic challenges comprising the overall impact of the current global geopolitical predicament, the RBI declared in a release.
Before the Monetary Policy Committee (MPC) meeting on November 3, the Central Board of Directors of the Reserve Bank of India (RBI) met on Monday and surveyed the current economic circumstance.
What is Monetary policy?
Monetary policy refers to the policy of the central bank about the use of monetary instruments under its supervision to accomplish the objectives specified in the Act.
The primary objective of the RBI’s monetary policy is to maintain rate vitality while maintaining in psyche the objective of development.
Price vitality is an essential precondition to sustainable development.
The amended RBI Act, of 1934 also gives for the inflation target (4% +-2%) to be set by the Government of India, in meeting with the Reserve Bank, once every five years.
Myriad Instruments of Monetary Policy Repo Rate:
The interest rate at which the Reserve Bank provides overnight liquidity to banks against the collateral of administration and other ratified securities under the liquidity adjustment facility (LAF).
Reverse Repo Rate:
The interest rate at which the Reserve Bank absorbs liquidity, on an overnight purpose, from banks against the collateral of capable government protection under the LAF.
Liquidity Adjustment Facility (LAF):
The LAF consists of overnight as adequate as term repo auctions.
Term repo aims to enable and improve the interbank term money market, which in turn can set market-based benchmarks for the pricing of loans and deposits, and hence enhance the transmission of monetary policy.
The RBI also performs variable interest rate reverse repo auctions, as necessitated under market circumstances.
Marginal Standing Facility (MSF):
A facility under which scheduled commercial banks can rent additional amounts of overnight money from the Reserve Bank by spooning into their Statutory Liquidity Ratio (SLR) portfolio up to a margin at a penal rate of interest.
This gives a security valve against unplanned liquidity shocks to the banking system.
The MSF rate and reverse repo rate determine the corridor for the daily activities in the weighted average call money rate.
It is the rate at which the RBI is willing to buy or rediscount bills of exchange or other commercial papers. The Bank Rate is published under Section 49 of the RBI Act, 1934.
This price has been aligned to the MSF rate and, therefore, modifications automatically as and when the MSF rate modifications alongside the policy repo rate modifications.
Cash Reserve Ratio (CRR):
The average daily balance that a bank is expected to maintain with the Reserve Bank as a share of such percentage of its Net need and time liabilities (NDTL) that the Reserve Bank may inform from time to time in the Gazette of India.
Statutory Liquidity Ratio (SLR):
The share of NDTL that a bank is expected to maintain in careful and liquid assets, such as unencumbered government safeties, cash, and gold.
Changes in SLR often impact the availability of aids in the banking system for lending to the private sector.
Open Market Operations (OMOs):
These comprise both, outright investment and the sale of government safeties, for injection and absorption of durable liquidity, respectively.
Market Stabilization Scheme (MSS):
This instrument for monetary management was inaugurated in 2004.
Surplus liquidity of a more enduring nature arising from large capital inpouring is absorbed through the sale of short-dated administration safeties and treasury bills.
The cash so mobilized is held in a distinct administration account with the RBI.
What is the Monetary Policy Committee (MPC)?
Origin: Under Section 45ZB of the amended (in 2016) RBI Act, 1934, the central administration is ratified to constitute a six-member Monetary Policy Committee (MPC).
Objective: Further, Section 45ZB lays down that “the Monetary Policy Committee shall discern the Policy Rate required to accomplish the inflation target”.
The determination of the Monetary Policy Committee shall be compelling on the Bank.
Composition: Section 45ZB announces the MPC shall consist of six members:
RBI Governor as its ex officio chairperson, Assistant Governor in charge of monetary strategy,
An officer of the Bank to be selected by the Central Board,
Three persons are to be appointed by the central administration.
This classification of selections must be from persons of capacity, integrity, and reputation, having proficiency and experience in the field of economics or banking or finance, or monetary policy.
The 598th convention of the RBI’s Central Board of Directors was held today in Mumbai.
The convention, which was chaired by RBI Governor Shaktikanta Das, also talked over the functioning of several sub-committees of the central board, the ombudsman scheme, and the activities of select central office divisions.
RBI assistant directors and other directors of the committee attended the convention. Division of Economic Affairs secretary A. Seth was also accompanying.
In a recent week, the RBI declared that it will hold an additional MPC convention on November 3. The convention has been planned to determine the content of the report that the RBI has to deliver to the government after it failed to maintain the consumer price index (CPI) inflation target within the 2-6 % band for three successive quarters, or nine straight months – January to September 2022.
In the document, the central bank will have to indicate the remedial efforts it proposes to take and an approximate time within which the inflation target will be accomplished following the timely implementation of the proposed remedial efforts.