Monetary Policy
Banking · मौद्रिक नीति · 22 facts
Monetary Policy: RBI controls money supply, interest rates and credit availability
Primary objective: price stability while keeping in mind growth
MPC (Monetary Policy Committee): 6 members — 3 RBI + 3 Government nominees
MPC constituted under Section 45ZB of RBI Act; RBI Governor is Chairperson
RBI Governor has casting vote in MPC if there is a tie
MPC meets at least 4 times a year (bi-monthly) to decide policy rates
CRR: quantitative tool — % of deposits kept with RBI, controls money supply
SLR: quantitative tool — % of deposits kept as liquid assets by bank
Repo Rate: rate RBI charges banks for short-term loans (key policy rate)
Reverse Repo: rate RBI pays banks when they park excess funds with RBI
Bank Rate: long-term lending rate of RBI (no collateral), penalty rate
MSF: banks borrow overnight by dipping into SLR, 0.25% above Repo
OMO: RBI buys bonds to inject liquidity, sells bonds to absorb liquidity
Increase CRR/SLR/Repo = tight policy (less money); Decrease = easy policy
Qualitative tools: Moral Suasion, Margin Requirements, Credit Rationing
Moral Suasion: RBI persuades banks through advice (no legal force)
Liquidity Adjustment Facility (LAF) = Repo + Reverse Repo window
Standing Deposit Facility (SDF) replaced Reverse Repo as floor rate in 2022
Expansionary policy: reduce rates to boost growth during recession
Contractionary policy: raise rates to control inflation
Urjit Patel Committee (2014) recommended inflation targeting framework
Monetary Policy transmission: time taken for rate changes to reach borrowers