Current Affairs 2022: RBI Monetary Policy

By Vasu Gupta

The committee projected the GDP growth rate at 7.2% from 7.8% and the inflation rate increased to 5.7% from 4.5% for FY 2022-23.

What is a Monetary Policy?

As per the Reserve Bank of India Act, 1934, Monetary Policy refers to how the central bank controls the supply of money to accomplish its economic objectives in the market.

Composition of The Monetary Policy Committee

The Monetary Policy Committee meets at least four times a year for making regulatory policy. In this committee, each member has one vote for or against the policy, and in the case of an equal no. of votes, the Governor has the second or the deciding vote.

This is the RBI’s first bi-monthly Monetary Policy for the year 2022-23 and the committee was chaired by the Governor of the Reserve Bank of India, Shri Shaktikanta Das. The committee had the following members:

1. Chaired by Governor of the Reserve Bank of India, Shri Shaktikanta Das

2. In charge of Monetary Policy, Deputy Governor of the Reserve Bank of India, Dr. Michael Debabrata Patra
3. Officer of the Reserve Bank of India, Dr. Mridul K. Saggar
4. Professor at the Indira Gandhi Institute of Developmental Research, Mumbai, Prof. Ashima Goyal 
5. Professor at the Indian Institute of Management, Ahmedabad, Prof. Jayanth R Varma
6. Senior adviser with the National Council of Applied Economic Research, New Delhi, Dr. Shashanka Bhide

Instruments of the Monetary Policy

The important instruments of the monetary policy are Bank Rate, Repo Rate, Reverse Repo Rate, Liquidity Adjustment Facility, Marginal Standing Facility, etc.

1. Repo Rate: It is a fixed interest rate at which commercial banks borrow liquidity from the Reserve Bank of India.
2. Reverse Repo Rate: It is a fixed interest rate at which commercial banks park their excess cash with the Reserve Bank of India.
3. Liquidity Adjustment Facility (LAF): It helps in the development of the inter-bank term money market which sets the benchmarks for rates of loans and deposits.
4. Marginal Standing Facility (MSF): It enables the banks to borrow an additional amount from the Reserve Bank of India. 

In this month’s Monetary Policy, the Repo Rate, Reverse Repo Rate, Policy Repo Rate, Marginal Standing Facility Rate, Bank Rate, Cash Reserve Ratio, and Statutory Liquidity Ratio Rate are kept unchanged. The repo rate is kept unchanged for the 11th consecutive time. Earlier in the month of May 2020, the repo rate was decreased, since then it has remained at the lowest rate of 4%.

The following rates remained unchanged in April’s Monetary Policy:

1. Repo Rate: 4.00%

2. Reverse Repo Rate: 3.35%

3. Marginal Standing Facility Rate: 4.25%

4. Bank Rate: 4.25%

5. Cash Reserve Ratio: 4%

6. Statutory Liquidity Ratio: 18.00%

Highlights of April’s Monetary Policy

1. The committee projected GDP growth at 7.2%. These projections are based on the crude oil price assumption at USD 100 a barrel during FY23.
Projections of GDP growth rate are as shown below:

Q1	16.2%
Q2	6.2%
Q3	4.1%
Q4	4%

2. The committee projected inflation at 5.7% for FY23. These projections are based on the increasing geopolitical tensions due to the Russia-Ukraine conflict.

Projections of the inflation rate are as shown below:

Q1	6.3%
Q2	5.8%
Q3	5.4%
Q4	5.1%

This time, the projection for GDP growth rate decreased to 7.2% from 7.8% and the inflation rate increased to 5.7% from 4.5% for 2022-23.

3. The committee has set the target to maintain the annual inflation at 4% until March 31, 2026.

4. Robust Rabi crops to support recovery in rural demands; pickup in contact-intensive services to boost urban demands.

5. The committee projected prices of edible oils to remain at an elevated level.

6. Investments to boost confidence in bank credit, government Capex plans, and other investment activities.

7. The committee regulated the opening time of financial markets for trading at 9 AM from April 18, earlier it was 10 AM.

8. Rules and norms regarding housing loans are revised and rationalised till March 2023.

9. A new committee is to be created to review customer service standards.

10. Extension of card-less facilities for cash withdrawal to all banks & ATMs using the UPI.

11. RBI will adopt new approaches for liquidity management with the surety of adequate liquidity in the system. It also provided excess liquidity of INR 8.5 lakhs in with a multi-year withdrawal system.

To maintain and sustain an orderly and stable financial condition in the market, RBI will take further steps. The next meeting of the Monetary Policy Committee is scheduled for 6 to 8 June 2022.

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