RBI Monetary Policy Rate: Key highlights (8 June, 2022)

RBI Monetary Policy Rate: Key highlights (8 June, 2022)

The Reserve Bank of India’s (RBI) Monetary Policy Committee meeting held between 6-8 June 2022 has decided to increase the repo rate by 50 bps to 4.90%.

Last in March 2020, RBI has slashed the repo rate with an aim to cushion the impact of covid-19. It has been almost 2 years before increasing it on May 4, 2022.

Important Highlights of the monetary Policy:

  • The Standing Deposit Facility and Marginal Standing Facility rates raised by 50 basis points.
  • RBI kept its projection growth at 7.2% for the current fiscal on the back of improvement in urban demand and gradual recovery in rural India.

GDP Forecast by RBI:

Month GDP Estimated
April-June 2021 16.2%
July-September 2021 6.2%
October-December 2021 4.1%
January-March 2022 4.0%
  • CPI inflation forecast for FY23 raised to 6.7 percent from 5.7 percent.
  • India’s foreign exchange reserves stood at $601.1 billion.
  • The limit for home loans given by Urban and Rural Co-operative banks are being revised to more than 100%.
  • The limit on recurring e-payments is now raised to Rs 15,000 from Rs 5,000 to further facilitate transactions such as subscriptions.
  • Credit cards are now starting with RuPay credit cards which can now be linked to the Unified Payments Interface (UPI) platforms.
  • RBI has increased the repo rate by 50 bps to 4.90%. This increase is second time in five weeks at the conclusion of the Monetary Policy Committee Meeting.
  • RBI raised the repo rate by 40 basis points to 4.4% in an off-cycle hike, its first increase in borrowing rates since August 2018, to contain inflation.
  • The central bank is also expected to raise its inflation projection for the current fiscal year to above 6%, due to recent increase in inflationary pressure.
  • RBI extending its 40bps repo hike of May with a 35bps increase in June, followed by 25bps each in August and September.

Current Policy Rate: Last Updated on 8 June 2022

Policy Rates
Repo Rate 4.90%
Reverse Repo Rate 3.35%
Marginal Standing Facility (MSF) Rate 5.15%
Bank Rate 5.15%
Cash Reserve Ratio 4.50%
Statutory Liquidity Ratio (SLR) 18%
Standing Deposit Facility Rate 4.65%

 

Q.1. What is the Repo rate after the MPC held?

Ans. 4.90%

Q.2. What is the increased limit for e-mandates/ standing instructions on cards and PPIs for recurring transactions?

Ans. ₹15,000

Q.3. What is the RBI’s GDP growth Projection of India?

Ans. 7.2%

CRR – Cash Reserve Ratio – Banks in India are required to hold a certain proportion of their deposits in the form of cash. However Banks don’t hold these as cash with themselves, they deposit such cash(aka currency chests) with Reserve Bank of India , which is considered as equivalent to holding cash with themselves. This minimum ratio (that is the part of the total deposits to be held as cash) is stipulated by the RBI and is known as the CRR or Cash Reserve Ratio.

SLR – Statutory Liquidity Ratio – Every bank is required to maintain at the close of business every day, a minimum proportion of their Net Demand and Time Liabilities as liquid assets in the form of cash, gold and un-encumbered approved securities. The ratio of liquid assets to demand and time liabilities is known as Statutory Liquidity Ratio (SLR). RBI is empowered to increase this ratio up to 40%. An increase in SLR also restricts the bank’s leverage position to pump more money into the economy.

Note-The maximum limit of SLR is 40% and minimum limit of SLR is 0 In India
MSF – Marginal Standing facility It is a special window for banks to borrow from RBI against approved government securities in an emergency situation like an acute cash shortage. MSF rate is higher then Repo rate. 

Bank RateThis is the long term rate(Repo rate is for short term) at which central bank (RBI) lends money to other banks or financial institutions. Bank rate is not used by RBI for monetary management now. It is now same as the MSF rate. 

Repo rate is the rate at which the central bank of a country (Reserve Bank of India in case of India) lends money to commercial banks in the event of any shortfall of funds. Repo rate is used by monetary authorities to control inflation. 

Reverse Repo rate is the rate at which the Reserve Bank of India borrows funds from the commercial banks in the country. In other words, it is the rate at which commercial banks in India park their excess money with Reserve Bank of India usually for a short-term. 

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