RBI’s Status Quo on Repo Rate

Context: The Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) decided to keep the main policy instrument (Repo rate) unchanged at 6.50%. More about the news:

• It has hiked the inflation projection from 5.1 per cent to 5.4 per cent for FY2024 in the wake of the high food inflation.
• All external benchmark lending rates (EBLR) linked to the repo rate will not rise which will provide some relief to borrowers.

About Monetary Policy:

• It is a function of the central bank, which is chiefly aimed at regulating the size and cost of money in the economic system.
• Duration: The policy is a bi-monthly affair announced 6 times in a financial year.
•  Monetary Policy Committee: It has six members nominated by RBI and the Ministry of Finance in equal numbers, including the RBI Governor as its Chairman who avails the right of casting vote in case of a tie in decisions.

About Repo Rate:

• The rate of interest the RBI charges from its clients on their short-term borrowing is the repo rate, this is an abbreviated form of the ‘rate of repurchase’.
• It is considered a discount on the dated government securities, which are deposited by institutions to borrow for the short term.
• Repo rate has direct relation with the interest rates banks charge on the loans they offer as it affects the operational cost of the banks.

News Source: The Hindu