Economy & Banking Dose

RBI second Bi-monthly Monetary Policy 2019-20

Reserve Bank of India (RBI) has announced its second Bi-Monthly Monetary Policy Rates for 2019-20 in Mumbai today.

Second Bi-monthly policy has been released based on the assessment of the Monetary Policy Committee of the Reserve Bank of India (RBI). Monetary Policy Rates are crucial for the exam, especially Banking awareness.

The three-day policy review meeting by the six member Monetary Policy Committee (MPC) headed by RBI Governor Shaktikanta Das in Mumbai.

The Reserve Bank of India in its second Bi-Monthly statement 2019-20 has made the following announcements –

  • The RBI reduced the policy repo rate under the liquidity adjustment facility (LAF) by 25 basis points to 5.75 per cent from 6.0 per cent with immediate effect.
  • Consequently, the reverse repo rate under the LAF stands adjusted to 5.50 per cent, and
  • The marginal standing facility (MSF) rate and the Bank Rate to 6.0 per cent.
  • The MPC also decided to change the stance of monetary policy from neutral to accommodative.
  • These decisions are 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

Current Policy Rates:

Policy Repo Rate 5.75%
Reverse Repo Rate 5.50 %
Marginal Standing Facility Rate 6.0%
Bank Rate 6.0%

Reserve Ratios:

CRR 4 %
SLR 19.0%

The remaining policy statements would be released by RBI as stated below –

Policy Statement Dates of Release
First Bi-monthly Monetary Policy Statement for 2019-20 4th April 2019
Third Bi-monthly Monetary Policy Statement for 2019-20 7th August 2019
Fourth Bi-monthly Monetary Policy Statement for 2019-20 4th October 2019
Fifth Bi-monthly Monetary Policy Statement for 2019-20 5th December 2019
Sixth Bi-monthly Monetary Policy Statement for 2019-20 6th Feb 2020

Let us now understand some common terms of the Policy rates – 

Repo Rate

It is the rate at which RBI lends money to commercial banks.

Reverse Repo rate

It is the rate at which RBI borrows money from commercial banks.

Cash Reserve Ratio (CRR)

The share of net demand and time liabilities (deposits) that banks must maintain a cash balance with the Reserve Bank.

Statutory Liquidity Ratio (SLR)

The share of net demand and time liabilities (deposits) that banks must maintain in safe and liquid assets, such as, government securities, cash, and gold.

Bank Rate

It is the rate at which the Reserve Bank is ready to buy or rediscount bills of exchange or other commercial papers for the long term.

Marginal Standing Facility Rate (MSF)

The rate at which the scheduled banks can borrow funds from the RBI overnight, against the approved government securities is termed as MSF.

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