Art & Culture
- Sexual Harassment Charges against Chief Justice of India Ranjan Gogoi
- All You Need to know about Electoral Bonds
- Electoral Bonds controversy
- NaMo TV controversy
- General Elections 2019
- RBI Governor bats for a Permanent Status to Finance Commission
- PM Modi’s Mission Shakti Speech & Model Code of Conduct
- Sadhvi Pragya Thakur’s latest Controversy
- Rafale deal document controversy
- Should SC Judges be under RTI ambit?
- Supreme Court Judgement on Tainted Candidates
- VVPAT verification
Governance & Social Justice
- Candida Auris : Drug- resistant fungi
- Candida auris infection
- Healthcare System for India, Difference in USA & European healthcare model?
- Lateral Entry in Civil Services explained
- Model policy for Women in Police
- NIRF India Rankings 2019 declared
- Quality Assurance Scheme
- Sex on false promise of marriage is rape
- Survey 2019 Ambitions Beyond Growth report by UNESCAP
- World Health Statistics Overview 2019 report on Life Expectancy
- World Press Freedom Index 2019
- Supreme Court compensation order on Bilkis Bano case
- WHO guidelines on physical activity for children under 5 years of age
- Global Talent Competitive Index 2019
- Algeria Political Crisis
- EU’s new Copyright Law, Will it change Web Worldwide?
- India Pakistan Kartarpur Corridor Talks
- India to Become NATO Ally?
- Japan Starts a New Era
- Julian Assange Arrested
- Sudan Political Crisis
- Trump designates Islamic Revolutionary Guard Corps of Iran
- United Nations Has to Pay India $38 Million
- US labels Revolutionary Guard of Iran a terror organisation
- US Mexico border wall controversy
- Why is UAE Important for India?
- Why is Chile Important for India?
- India Pakistan Conflict De-escalation Mechanisms
- India suspends cross LoC trade with Pakistan
- What is Arab Spring 2.0?
- India to stop buying Oil from Iran
- Trump withdraws from UN arms treaty
- Asian Development Outlook 2019
- China’s growth after slowdown
- Foreign Investment in India
- India’s 20th Livestock Census
- India’s transition to Renewable Energy from conventional sources
- Indian Army Builds The Longest Bridge of India Over Indus In Leh
- India Energy Modelling Forum by NITI Aayog & USAID
- National Common Mobility Card launched
- Rise and fall of Private Airlines in India
- Rise in Global Crude Oil prices & weakening Rupee
- Slowdown in Industrial Growth & rising Inflation
- Supreme Court order on EPFO
- Supreme Court quashes RBI’s 12 February Circular on NPA
- What are Junk Bonds?
- What is Fixed Maturity Plans?
- What is GDP deflator? Is it more comprehensive compared to WPI and CPI?
- What is Trader’s Credit Card Scheme?
- What is Wholesale Price Index?
- 1st Bimonthly Monetary Policy review – April 2019
- National Rubber Policy 2019
- Sensex hits 7 months high, History & Functions of Bombay Stock Exchange
- Supreme Court orders RBI on RTI
- What is Dedollarisation?
- Asian Tea Alliance
- Pepsico vs Farmers Issue
Defence & Security
Science & Technology
- Dhanush Artillery Guns
- Combat Casualty Drugs
- The Indian Museum of the Earth (TIME)
- EMISAT Satellite Launched
- Faster Adoption & Manufacturing of Hybrid & Electric
- First Ever Image of a Black Hole
- India to Buy MH60 Romeo Helicopters
- Nepal and Sri Lanka Launch Their First Satellites Raavana 1 & NepaliSat-1
- Nirbhay Missile Successfully Tested
- High Bacteriophages in Ganga River
- Army invokes Emergency Powers for Missile Deal
- Cell Based Meat
- INS Imphal Guided Missile Destroyer
- Draft Indian Forest Act 2019
- Gujarat Fishermen’s victory in US Supreme Court
- Humpback Mahseer Fish included in Critically Endangered list by IUCN
- India Cooling Action Plan (ICAP)
- Jammu & Kashmir Environment Issues
- Madras High Court order on Chennai Salem Highway
- Monkey declared Vermin in Himachal Pradesh
- Neelakurinji Flower under Severe Threat
- Solar eWaste
- Special Postal Stamp on Ice Stupas released
- State of Global Climate report 2018
- What is Green Finance Ecosystem?
- Wind turbines are impacting ecology in Western Ghats
- All about Wild Food Plants
Spice of the Month
- GS 3 || Economy || Banking & Financial Sector || RBI
Why in news?
- In its first meeting in FY’20, the Monetary Policy Committee (MPC) of the Reserve Bank of India cut the key lending rate — repo rate — by 25 basis points from 6.25% to 6% .
- Of the six members on the committee, The panel voted 4-2 in favour of the rate cut.
Monetary Policy Committee
- The RBI has a government-constituted Monetary Policy Committee (MPC) which is tasked with framing monetary policy using tools like the repo rate, reverse repo rate, bank rate, cash reserve ratio (CRR).
- Among them, the repo rate, also known popularly as the policy rate, is the most powerful one. The repo rate is the interest rate at which the RBI provides loans to banks.
Constitution of the MPC
- The Central Government constitutes the MPC through a notification in the Official Gazette.
- Altogether, the MPC will have six members –
- the RBI Governor (Chairperson),
- the RBI Deputy Governor in charge of monetary policy,
- one official nominated by the RBI Board and
- the remaining three members would represent the Government of India.
- These Government of India nominees are appointed by the Central Government based on the recommendations of a search cum selection committee consisting of –
- the cabinet secretary (Chairperson),
- the RBI Governor,
- the secretary of the Department of Economic Affairs, Ministry of Finance, and
- three experts in the field of economics or banking as nominated by the central government.
- The three central government nominees of the MPC appointed by the search cum selection committee will hold office for a period of four years and will not be eligible for re-appointment.
- The proceedings of MPC are confidential and the quorum for a meeting shall be four Members, at least one of whom shall be the Governor and in his absence, the Deputy Governor who is the Member of the MPC.
- The MPC takes decisions based on majority vote (by those who are present and voting).
- In case of a tie, the RBI governor will have the second or casting vote.
- The decision of the Committee would be binding on the RBI.
As per the Act, RBI has to organise at least four meetings of the MPC in a year. (More meetings can be held if the RBI Governor is of that opinion).
- Reverse repo rate has been adjusted to 5.75 per cent.
- Stance: The committee kept the monetary policy stance at ‘neutral’. In the last review in February, the MPC shifted its stance to ‘neutral’ from ‘calibrated tightening’.
- GDP growth projections: Besides, the RBI has also revised its GDP projection downwards for FY’20.
- The RBI has slashed the GDP growth forecast to 7.2% for 2019-20 from 7.4% projected in the February policy amid some signs of domestic investment activity weakening as reflected in a slowdown in production and imports of capital goods.
- GDP growth for 2019-20 is projected at 7.2 per cent — in the range of 6.8-7.1 per cent in the first half of 2019-20 and 7.3-7.4 per cent in the second half — with risks evenly balanced.
- Inflation: The RBI has revised the path of CPI inflation downwards to 2.4 per cent in Q4 of 2018-19, 2.9-3.0 per cent in the first half of 2019-20 and 3.5-3.8 per cent in H2 of 2019-20, with risks broadly balanced.
- Increase in money supply: The repo rate is an instrument used by the Reserve Bank of India to control inflation.
- It is the rate at which the central bank (Reserve Bank of India) lends money to commercial banks in the event of any shortfall of funds.
- The expectation of a rate cut is based on a lower inflation rate as well as slower growth in the economy.
- Less interest on loans: When RBI cuts repo rate, banks need to pay less interest on their borrowings from RBI.
- Thus, banks also charge less on their loans and it thereby raises money circulation, which leads to price rise and increase economic activity.
- Depositors receive low interest: For a depositor, the new deposits earn a lower rate and it means lower returns.
- However, as a borrower, a downward revision of interest rate would bring down interest outgo in the near future.
Monetary Policy Stance
- RBI, in addition to regulating policy rates, indicates the market condition to ensure stability. This is done through what some call, in banking parlance, ‘monetary policy stance of the RBI’. The below mentioned terms depict the stance RBI adopts from time to time keeping in mind the current condition.
- Calibrated tightening: means that in the current rate cycle, a cut in the policy repo rate is off the table, and MPC is not obliged to increase the rate at every policy meeting.
- Neutral: As the name suggest, RBI remains watchful but, neutral. A neutral policy will mean that depending upon the situation; RBI can increase or decrease interest rates.
- Accommodative: It shows that RBI is ‘accommodative’ in taking policy rate decisions. It believes that economy needs to grow and hence, it will decrease the policy rate further in future.
- These stances are meant to keep the 4% inflation target set by the government within permissible limits. Also, these stances help in reducing uncertainties and volatility in the market which big businesses don’t like at all.
- What does the RBI’s rate cut indicate? Why did RBI revise the GDP growth downwards?