Table of Contents
Repo rate unchanged
- The RBI decision to keep Repo rates unchanged at 4 per cent will help banks to keep interest rates in the financial system unchanged, aiding growth in the economy.
- Borrowers won’t have to shell out more on EMIs and loan repayments at least for the time being.
- A stable Reverse repo rate means that the central bank wants to retain the money, or liquidity, in the banking system.
- A hike would have signalled the start of the reversal of the monetary policy cycle that would eventually lead to a rise in rates.
Repo rate unchanged
- The RBI decision to keep Repo rates unchanged at 4 per cent will help banks to keep interest rates in the financial system unchanged, aiding growth in the economy.
- Borrowers won’t have to shell out more on EMIs and loan repayments at least for the time being.
What is SDF?
- Banks, at different points in time, may be short of funds or flush with money. When they need money for the short-term, they borrow from the bankers’ bank—RBI.
- What happens when banks have excess funds? They lend it to the RBI at the reverse repo rate that is lower than the repo rate.
- Here too, government securities act as collateral.
- The worry is there may be only so much collateral to go around.
- Collateral may become a constraining factor if the central bank runs out of securities to absorb liquidity under the reverse repo window.
- Standing Deposit Facility will allow the RBI to absorb surplus funds from banks without collateral.
- Banks too continue to earn interest.
- In effect, it will empower the RBI to suck out as much liquidity as needed.
- This concept, first recommended by the Urjit Patel committee report in 2014.
- Later became part of the central bank’s toolkit to manage liquidity during demonetization.
conclusion
- Das said the conflict in Europe now poses a new and overwhelming challenge, complicating an already uncertain global outlook.
- “RBI is braced up and prepared to defend the Indian economy with all instruments at its command,” Das said.
- “Our goals of price stability, sustained growth and financial stability are mutually reinforcing and we continue to be guided by this approach,” he said.
Q) Which among the following is the objective of CRR & SLR?
- Ensure liquidity position of bank
- Ensure financial position of bank
- Ensure profit position of bank
- All of the above
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