RBI HOLDS REPO RATE, INCREASES GDP FORECAST TO 7.2%.

Why in the news?

The RBI’s Monetary Policy Committee (MPC) decided to keep the repo rate at 6.5%, marking the eighth consecutive hold.
Focus:The decision aims to combat high inflation while supporting economic growth.

source:scribd

About Repo Rate:

Definition: Interest rate at which the central bank lends to commercial banks for short periods.
Purpose:
- Control Money Supply: Adjust liquidity in the financial system.
- Manage Inflation: Influence borrowing and spending behavior.
- Ensure Financial Stability: Provide liquidity during financial stress.

What is Reverse Repo Rate?

● Definition: Interest rate at which the central bank borrows from commercial banks and financial institutions.

● Mechanics:

○ Lending Phase: Banks deposit excess funds with the central bank.

○ Borrowing Phase: Central bank repays borrowed amount with interest.

About Monetary Policy Committee (MPC):

● Establishment: Constituted by amending the RBI Act, 1934 through the Finance Act, 2016.

● Responsibilities: Sets India’s benchmark interest rate to ensure transparency and accountability in monetary policy.

● Mandate: Maintains a 4% (+/- 2%) annual consumer price index-based inflation (CPI) rate.

Composition:

● Consists of six members: three RBI officials and three external members nominated by the Government of India (GoI).

● RBI Governor serves as the ex officio chairperson of the committee.

About Consumer Price Index (CPI):

● Definition: Tracks retail price changes of goods and services for daily consumption.

● Calculation: Based on a fixed basket of goods and services, compared to a base year (currently 2012).

● Interpretation:

○ Cost of Living: Indicates changes in living expenses.

○ Purchasing Power: Reflects consumers’ ability to buy goods and services.

○ Inflation: Measures the rate of increase in retail pri

Associated Article:

https://universalinstitutions.com/repo-rate-unchanged/

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