Repo Rate and Reverse Repo Rate: Reserve Bank of India released the April 2023 monetary policy report on April 06, 2023, for the financial year 2023-24. RBI is the central bank of India that decides the monetary policy of the country and also regulates the Indian banking system. RBI Monetary Policy Committee decided to keep the repo rate unchanged. There have been no changes in terms of interest rate, or repo rate in which banks borrow funds from the RBI. This also determined the interest rate for the customer’s loan interest rate to the bank.
What is Monetary Policy?
RBI Monetary Policy – The policy affecting the liquidity of money ie. money supply and interest rate in the economy is called monetary policy. Monetary policy is a broad concept, it is prepared and operated under the control of the central bank. In USA Federal Reserve Bank and RBI in India. The amount of flow and operation of money in the economy is also regulated by monetary policy. Monetary policy is the most important tool to control inflation in the economy and to get out of recession and deflation. Repo Rate and Reverse Repo Rate
- The main objective of monetary policy is to maintain price stability in the economy.
- This policy balances the flow of money in the economy and controls interest rates.
- There are 2 types of monetary policy – 1. Loose Monetary Policy 2. Tight Money Policy
- The important objectives of monetary policy are to achieve financial stability, inclusive growth with low and stable inflation.
What is Repo Rate?
The rate at which the bank takes short-term loans from the Reserve Bank of India is called Repo Rate.
It is of 2 types –
- Over the night Repo Rate – Under this, banks can take 0.25% of their deposits from RBI and this is only for 1 day
- Term Repo Rate – If there is more than 1 day or 7,21,90 days, then the term repo rate has to be taken। In this, banks can borrow 0.75% of their deposits.
Banks have to keep securities with RBI as a guarantee। The value of the securities will be 105%
What is Reverse Repo Rate?
The reverse repo rate is a mechanism used to drain market liquidity, reducing the ability of investors to borrow money. A reverse repo rate is when the RBI borrows money from banks (in cases where the market is overflowing with funds). The banks earn interest on their securities with the RBI.
The repo rate and reverse repo rate under the bank rate of rbi monetary policy are two important tools that are used to determine the monetary policy.
Official Website: RBI
Instruments of monetary policy
There is 2 type of Instruments or Method of Monetary Policy:
- Quantitative Instruments
- Qualitative Instruments
1. Bank Rates
2. Open Market Operation
3. Variable Reserve System
RBI Monetary Policy 2023
The 3-day meeting of the monetary policy of the month of April in the financial year 2023-24 is recently completed। In this meeting, Governor of the Reserve Bank of India Shaktikant ten has said that RBI has decided not to increase the repo rate। In such a situation, this cleanliness becomes very special for the loan takers। Because if the Reserve Bank increases its repo rate, then the loan taker has to pay more interest on the price of its month। The direct relationship of the repo rate is related to the interest of the loans you take and the monthly installments of the loans taken.
Repo Rate and Reverse Repo Rate
If the RBI increases the repo rate, the bank customer’s loans EMI become expensive। But this time there has been no change in the repo rate by the RBI, it has relieved the general public। In the 3-day monetary policy review meeting, it has been decided that the repo rate will be kept at 6.50 %. Repo Rate and Reverse Repo Rate