BANKING UPDATES FROM RBI
The Reserve Bank of India in its bi-Monthly Monetary Policy Statement for 2025-26 dated 9th April 2025 maintained a status quo on the policy rate. The decision of the Monetary Policy Committee (MPC) is consistent with a neutral stance of monetary policy in consonance with the objective of achieving the medium-term target for consumer price index (CPI) inflation of 4 per cent within a band of +/- 2 per cent, while supporting growth.
MONETARY AND LIQUIDITY MEASURES:
On the basis of an assessment of the current and evolving macroeconomic situation, RBI has announced the following:
- REPO RATE: The policy Repo rate under the Liquidity Adjustment Facility is 6.00 per cent w.e.f from 9th April 2025.
- FIXED REVERSE REPO RATE: The Fixed Reverse Repo Rate determined as 3.35 per cent as on 9th April 2025.
- STANDING DEPOSIT FACILITY RATE: The standing deposit facility rate determined as 5.75 per cent w.e.f. from 9th April 2025.
- BANK RATE: The Bank Rate is 6.25 per cent w.e.f. 9th April 2025. The Marginally Standing Facility (MSF) rate and the Bank Rate are calibrated to 25 basis points above the Repo Rate.
- MARGINAL STANDING FACILITY (MSF): The MSF rate (an emergency funding window) is changed as 6.25 per cent w.e.f. 9th April 2025.
- CASH RESERVE RATIO (CRR): In terms of Section 42(1) of the RBI Act, 1934 the Reserve Bank, having regard to the needs of securing the monetary stability in the country, prescribes the Cash Reserve Ratio (CRR) for Scheduled Commercial Banks (SCBs) without any floor or ceiling rate. At present CRR is 4.00% w.e.f. 28th Dec. 2024.
- STATUTORY LIQUIDITY RATIO (SLR): The SLR of scheduled commercial banks is at 18.00% w.e.f. 27th March 2021.
LINKAGE OF RATES WITH MONEY SUPPLY
- All the policy rates are inversely linked to the level of money supply. This means that as and when any one or more of these rates are increased, it will lead to a decrease in the money supply and vice versa. In other words, if RBI plans to suck/absorb liquidity, i.e. reduce the money supply to control the inflation, it may hike any one or more policy rates and vice versa.
- Remember – whenever there is a hike in any rate, it will have following effects:
– Fall in level of money supply
– Fall in level of inflation
– Fall in availability of funds with banks
– Fall in amount of loans given by banks
– Fall in growth of business/economy
It may also result in increase of two things:
- Higher rate of interest on bank loans
- Higher amount of EMIs for bank loans
- All the above will move in reverse direction if any of the rates are lowered by the RBI.
MONEY POLICY
- Whenever RBI tries to control inflation by reducing money supply, it is called Tight/Dear Money Policy.
- Whenever RBI tries to pump up the money supply by reducing rates, it is called Easy/Cheap Money Policy.