- The Reserve Bank of India(RBI) governor has highlighted the importance of the central bank’s role in maintaining financial stability.
- Financial stability can be defined as a condition in which the financial system is not unstable.It can also mean a condition in which the three components of the financial system which are financial institutions, financial markets and financial infrastructure are stable.
- RBI Governor has referred to the RBI Act according to which the primary objective of monetary policy is to maintain price stability while keeping in mind the objective of growth.
- However,after the global financial crisis in 2008,it has been recognized that price stability may not be sufficient for financial stability.Hence, financial stability has emerged as another key consideration for monetary policy.
- These comments came amid a non-banking financial companies (NBFCs) sector crisis which accounts for a fifth of the credit market.
- The RBI Governor also said that RBI is taking a fresh look at NBFC regulation and supervision.It is also monitoring the activities of large NBFCs with a view to ensure financial stability.
- Further,he said that the endeavour of RBI is to ensure price stability under the flexible inflation targeting regime and simultaneously focus on growth when inflation is under control.
- In 2019,RBI had reduced the Repo rate by 75 bps to 5.75% to boost economic growth which had fallen to 5.8% in the January-March 2019 quarter dragging down the full year growth to a five-year low of 6.8%.
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