Monetary policy is the method used by the financial authority of a country to control how much money is in the economy. This is generally handled by the central bank.

Role of RBI in Indian Monetary Policy

In India, this duty is entrusted to the Reserve Bank of India (RBI). It is the RBI's responsibility to handle the accessibility and cost of money in the economy to achieve specific goals.

Monetary Policy Tools

RBI uses certain tools to implement its monetary policy. The key tools include the repo rate, reverse repo rate, cash reserve ratio (CRR), and statutory liquidity ratio (SLR), among others. Altering these rates allows the RBI to control the supply of money in the economy.

  1. Repo Rate: This is the rate at which the RBI lends money to commercial banks. A decrease in the repo rate motivates banks to borrow more from the RBI, increasing the money supply in the market.

  2. Reverse Repo Rate: This is the rate at which RBI borrows money from commercial banks. An increase in this rate gives commercial banks incentive to lend more to the RBI, decreasing the overall money supply.

  3. Cash Reserve Ratio (CRR): CRR is a percentage of bank deposits that banks are required to keep with RBI. If CRR is increased, banks have less money to lend, which reduces the money supply.

  4. Statutory Liquidity Ratio (SLR): SLR is the ratio of liquid assets to demand and time liabilities. A hike in SLR means banks need to maintain a higher proportion of their assets as liquid, reducing the amount available to lend to customers.

Objectives of Monetary Policy

The monetary policy objectives include managing inflation, controlling exchange rates, and ensuring financial stability for economic growth.

RBI's Measures under Monetary Policy

RBI uses measures like Open Market Operations, Market Stabilisation Schemes, and altering repo and reverse repo rates to reach its monetary policy objectives.

Regulatory Laws

The Reserve Bank of India Act 1934 and the Banking Regulation Act 1949 gives RBI the power to control India's monetary system.

By ensuring a balanced and accessible money supply for all sectors, RBI's monetary policy plays a critical role in shaping India's economy.

Overview of Indian Economy as of 23rd January

This simplified document presents a detailed overview of various economic parameters of India like inflation, cash reserve ratio (CRR), statutory liquidity ratio (SLR), standing deposit facility (SDF), Marginal Standing Facility (MSF), Bank rate, reverse repo rate, repo rate and GDP forecast for fiscal year 2025.

Inflation Rate

Inflation is a measure of the rate at which the prices of goods and services are increasing. As of January 23, the inflation rate in India stands at 6.52%, indicating a rise in prices compared to the previous period.

Cash Reserve Ratio (CRR)

Cash Reserve Ratio (CRR) is a specified minimum fraction of a bank's total deposits that must be held as reserves with the central bank (Reserve Bank of India). The current CRR in India is 4.50%, implying that banks must keep 4.50% of their total deposits with RBI.

Statutory Liquidity Ratio (SLR)

SLR (Statutory Liquidity Ratio) is the percentage of deposits that banks are required by Indian law to invest in certain specified securities, mainly central government and state government securities. The current SLR in India is 18.0%.

Standing Deposit Facility (SDF)

Standing Deposit Facility (SDF) is a rate at which scheduled banks can park their excess reserves with the RBI, and it's currently at 6.25%.

Marginal Standing Facility (MSF)

Marginal Standing Facility (MSF) is a window for banks to borrow from the Reserve Bank of India in an emergency situation when inter-bank liquidity dries up completely. The MSF rate in India is currently 6.75%.

Bank Rate

The bank rate, also known as the discount rate, is the rate of interest charged by the RBI for providing funds or loans to the banking system. The current Indian bank rate is 6.75%.

Reverse Repo Rate

The reverse repo rate is the rate at which the RBI borrows money from commercial banks within the country. The current reverse repo rate in India is 3.35%.

Repo Rate

Repo rate is the rate at which the RBI lends money to commercial banks. It's a tool used by the monetary authorities to control inflation. The current repo rate in India is 6.5%.

GDP Forecast for FY 2025

GDP (Gross Domestic Product) is a comprehensive measure of a nation's overall economic activity. The current forecast for India's GDP growth is 7.00% for the fiscal year 2025, indicating an expected rise in the economic activity in the country.

This document provides a snapshot of the Indian economy's main indicators. The figures are monitored by government bodies to make necessary adjustments that would ensure economic stability and growth.