RBI Monetary Policy Committee meet

The newly formed Monetary Policy Committee held its meeting between October 7, 2020 and October 9, 2020. The Government of India recently appointed its members. They were economists Jayant R Varma, Shashank Bhide and Ashima Goyal. Also, the Government of India recently appointed Rajeshwar Rao as the Deputy Governor of RBI.

Highlights

• The repo was kept unchanged at 4%
• Reverse Repo Rate is to be maintained at 3.35% as before
• OMO of Rs 20,000 crores is to be conducted
• The Ways and Means Advance Limits of the Centre is kept at Rs 1.25 lakh crores
• The bank announced on-tap TLTRO for Rs 1 trillion at 4% till March 2021.

The bank predicts that the GDP for the fiscal year 2021 is contracting at 9.5% with chances of strong rebound.

What is OMO?

OMO is Open Market Operation. It is the process by which the central bank gives liquidity in the form of currency to the banks. By controlling OMO, the central bank controls the liquidity in the country. Currently, India is facing severe economic slowdown. Therefore, RBI is trying to push more currency into the economy. Thus, it is to conduct Open Market Operations.

What are Ways and Means Advance Limits?

They are short-term loan facilities that allows states and centre to borrow funds from RBI. This is mostly done to help the state and central governments bridge their temporary mismatch between expenditure and receipts.

The repo rate is the interest rate of the Ways and Means Advances.

What are LTRO?

TLTRO is Targeted LTRO. LTRO is Long Term Repo Operations. It is tool that allows banks to borrow one or two year funds. The funds are borrowed at Repo Rate.

Last meet

The last meet of the MPC was held in August 2020. During the meet RBI did not change repo rate and reverse repo rate. They were kept at 4% and 3.3% respectively.

Month: Current Affairs - October, 2020