Context
As per the reports of the Reuters poll of the Economist, there will be a delay in the revision of its policy rates by the RBI . As the inflation this year has held above the RBI`s upper threshold limit of 6%, there are speculations about the change in the current strategy of RBI of keeping the interest rate low to bolster growth.
Monetary policy instruments
- RBI formulates a monetary policy to regulate the monetary matters of the country. This policy includes the measures taken to regulate the supply of money, availability, and cost of credit in the economy.
- RBI used the following policy instruments to avail the above objectives:
- CRR(Cash reserve ratio)- It is part of the total deposit that a bank that is mandated by the RBI to be maintained in the form of liquid cash form. The current CRR rate mandated by RBI is 3%.
- SLR(Statutory Liquidity ratio) - It is the minimum percentage of deposits that is a commercial bank maintained with it in the form of liquid cash, gold, and other securities. It is being prescribed by Section24(2A) of the banking regulation act, of 1949. The current rate of SLR is 18.00 as per the RBI.
- Repo(Repurchasing agreement) rate - It is the rate at which RBI lends money to the commercial banks in. It is also termed as the policy rate as it is generally used by the MPC to control inflation.This rate is being decided by the monetary policy committee to maintain inflation growth in an economy.
- Reverse Repo rate - It is the rate at which RBI borrow money from the commercial bank mainly to absorb excess of liquidity from the market.
- Open market operations- Other than the above tools RBI also used the OMO to regulate money supply in the economy. OMO includes the selling and purchasing of the treasury bills and government securities in the market.
