RBI’s Fourth bi- monthly Policy: Salient points for Bank Exams

RBI’s Fourth bi- monthly Policy:  Salient points for Bank Exams

The Reserve Bank of India released India’s fourth bi- monthly Policy for the financial year 2017-18.  The last monetary policy was released in the month of August. The Monetary policy is basically released by Monetary Policy Committee (MPC) which consist six members.

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Key Points of Fourth Monetary Policy:

• The repo (repurchase option) rate* will stay at 6 percent. The rate was cut by 25 bps in third monetary policy.
• The reverse repo rate remains unchanged at 5.75 percent.
• Cash Reserve Ratio remains unchanged at 4 percent.
• The Central Bank reduced the statutory liquidity ratio (SLR)* by 50 bps to 19.50%. Earlier it was 20%.  This transition aims to meet the risk-based capital requirements as per Basel III* framework.
• The MSF (Marginal Standing Facility) and Bank Rate also remain unchanged at 6.25 percent.
• The GDP forecast for the year 2017-18 is lowered this time by RBI and it down to 6.7 %. Earlier it was projected 7.3%.
• The monetary policy committee raised the Inflation forecast to 4.2 -4.6 % for second half of the financial year 2017-18

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*Repo rate: the rate at which central banks lends to commercial banks for short term duration.

*SLR: It is the minimum proportion of deposits that banks have to maintain in form of Gold or government securities.

CRR*: It is the specified minimum percentage of cash deposits that commercial banks have to keep with RBI on a fortnightly basis.

*Basel III Accord: It is a framework for capital and liquidity standards for banking system worldwide. It establishes tougher capital standards through more restrictive capital definitions, higher risk-weighted assets, additional capital buffers, and higher requirements for minimum capital ratios. The Indian Basel III framework for bank risk-based capital requirements came into force in April 2013. It observed that several aspects of the Indian framework were more conservative than the Basel framework.

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