News:The Monetary Policy Committee of the Reserve Bank of India(RBI) has cut the key policy rate by 25 basis points to 5.15 %.
Highlights of the Monetary policy:
- The Reserve Bank of India’s(RBI) Monetary Policy Committee(MPC) has decided to reduce the policy repo rate under the liquidity adjustment facility(LAF) by 25 basis points to 5.15 % from 5.40 %.
- Consequently,the reverse repo rate under the LAF also stands reduced to 4.90 %.
- The MPC has also decided to continue with an accommodative stance as long as it is necessary to revive growth while ensuring that inflation remains within the target.
- RBI has also revised its growth forecast for the current financial to 6.1% from 6.9% projected in the August policy.
- Further,the growth forecast for the first quarter of the next financial year was also reduced to 7.2% from 7.4%.
About Monetary Policy Committee(MPC):
- The Monetary Policy Committee(MPC) is a committee of the Reserve Bank of India.
- The MPC is made up of six members with three nominated by the Union government and three representing the RBI.
- The MPC is mandated by law to ensure that retail inflation stays within a band of two percentage points of the target inflation rate of 4%.
About Liquidity Adjustment Facility (LAF):
- LAF allows banks to borrow money from RBI through repurchase agreements.
- LAF consists of repo and reverse repo operations.This arrangement allows banks to respond to liquidity pressures and is used by governments to assure basic stability in the financial markets.
- Repo rate is also known as the benchmark interest rate and it is the rate at which the RBI lends money to the banks for a short term.
Reverse Repo rate:
- Reverse repo rate is the short term borrowing rate at which RBI borrows money from banks.