Economy

RBI set to announce monetary policy later today

Reserve Bank of India logo is seen at the entrance of its headquarters in Mumbai. File

Reserve Bank of India logo is seen at the entrance of its headquarters in Mumbai. File   | Photo Credit: Reuters

It is widely expected that the apex bank will keep the key policy rates unchanged.

The Reserve Bank of India (RBI) is set to announce its monetary policy at 2:30 p.m. on Thursday afternoon.

It is widely expected that the apex bank will keep the key policy rates unchanged. That should bring comfort to markets at large. The retail inflation has slowed to 4.4 per cent in February. And, the December quarter GDP (gross domestic product) grew at 7.2 per cent, the fastest in five quarters. If the mood is to go by, the RBI will keep its policy rates unchanged. Not surprisingly, the Sensex is up by a good number in the morning trade. As we gear up to the RBI announcement, an understanding of the key policy rates will be in order. There we go.

1. At the moment, the Repo Rate is at 6.00%

* Repo rate is the rate at which the central bank of a country (Reserve Bank of India) lends money to commercial banks in the event of any shortfall of funds.

In other words, commercial banks borrow money from Reserve Bank of India by selling securities or bonds with an agreement to repurchase the securities on a certain date at a predetermined price.

2. Reverse Repo Rate at the moment stands at 5.75%

* Reverse repo rate is the rate at which the central bank of a country (Reserve Bank of India) borrows money from commercial banks within the country. It is a monetary policy instrument which can be used to control the money supply in the country.

3. And, the Marginal Standing Facility Rate is 6.25%

* Marginal Standing Facility (MSF) rate refers to the rate at which the scheduled banks can borrow funds overnight from the RBI against government securities. MSF is a very short-term borrowing scheme for scheduled commercial banks.

4.And the Bank Rate stands at 6.25%

* Interest rate at which a central bank will advance short-term loans to commercial banks. Changes in bank rate are reflected in the prime lending rates offered by commercial banks

Key differences between Repo Rate and Bank Rate

Repo Rate and Bank Rate have a few similarities. Both are fixed by the central bank and used to monitor and control the cash flow in the market.

They have some prominent differences too, however.

* Bank Rate is charged against loans offered by central bank to commercial banks, whereas, Repo Rate is charged for repurchasing the securities sold by the commercial banks to the central bank.

* Repo Rate is always lower than the Bank Rate.

* Increase in Bank Rate directly affects the lending rates offered to the customer, restricting people to avail loans and impacts the overall economic growth, whereas Increase in Repo Rate is usually handled by the banks and doesn’t affect customers directly.

* No collateral is involved while charging Bank Rate but securities, bonds, agreements and collateral are involved when Repo Rate is charged.

*Comparatively, Bank Rate caters to long-term financial requirements of commercial banks whereas Repo Rate focuses on short- term financial needs.

* Since it is an overnight loan, the loan tenure under the repo rate is 1 one day. On the other hand, the loan tenure under the Bank Rate is 28 days.

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Printable version | Apr 4, 2020 12:56:37 PM | https://www.thehindu.com/business/Economy/rbi-set-to-announce-monetary-policy-later-today/article23440812.ece

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