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Highlights of RBI’s Monetary Policy Committee Off-Cycle Meeting

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Highlights Of RBI's Monetary Policy Committee Off-Cycle Meeting

On May 2 & May 4, 2022, the Reserve Bank of India (RBI) held an off-cycle meeting of RBI’s Monetary Policy Committee. Following are its highlights:

Key Highlights: Rise in Repo Rate to 4.40%

i.The meeting saw the rise in policy repo rate under the liquidity adjustment facility (LAF) by 40 basis points to 4.40% with immediate effect, amid rising inflationary pressures in the economy.

  • It is expected to raise borrowing costs for corporates and individuals.
  • This is the first-rate hike since August 2018.
  • It is the rate at which banks borrow from the RBI.

Policy Rates
Policy Repo Rate4.40%
Reverse Repo Rate3.35%
Marginal Standing Facility (MSF) Rate4.65%
Bank Rate4.65%
Reserve Ratios
Cash Reserve Ratio (CRR)4.5%
Statutory Liquidity Ratio (SLR)18.00%

ii.Consequently, the Standing Deposit Facility (SDF) rate stands adjusted to 4.15% and the Marginal Standing Facility (MSF) rate and the Bank Rate to 4.65%.

iii.Cash Reserve Ratio (CRR) hiked by 50 bps to 4.5% w.e.f. May 21, 2022.The Statutory Liquidity Ratio (SLR) currently stands at 18 per cent.

  • This would drain Rs 87,000 crore of liquidity from the banking system.

iv.RBI also decides to keep the stance as  ‘accommodative’ to ensure inflation remains within target going forward.

  • An accommodative stance means RBI is prepared to expand the money supply to boost economic growth.

v.These decisions are in consonance with the objective of achieving the medium-term target for consumer price index (CPI) inflation of 4% within a band of +/- 2%, while supporting growth.

Global Assessment:

i.The International Monetary Fund (IMF) has revised down its forecast of global output growth for 2022 by 0.8 percentage point to 3.6%. 

ii.The World Trade Organization (WTO) also scaled down projection of world trade growth for 2022 by 1.7 percentage points to 3%.

iii.The IMF projects inflation to increase by 2.6 percentage points to 5.7% in advanced economies in 2022 and by 2.8 percentage points to 8.7% in emerging market and developing economies.

Figures with respect to India:

i.Domestic- Merchandise exports recorded double digit expansion for the 14th consecutive month in April. 

ii.Non-oil non-gold imports also grew robustly on the back of improving domestic demand.

iii.Bank credit rose (y-o-y) by 11.1% as on April 22, 2022. 

iv.India’s foreign exchange reserves declined by US$ 6.9 billion in FY23 (up to April 22) to US$ 600.4 billion.

v.In March 2022, headline CPI inflation surged to 7.0% from 6.1% in February 2022.

vi.Food inflation increased by 154 basis points to 7.5% and core inflation rose by 54 bps to 6.4%. 

vii.Retail inflation was 7% in March 2022 and held above the upper end of the RBI’s target band of 2-4% for the third month in a row.

The next meeting of the MPC is scheduled during June 6-8, 2022.

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About Reserve Bank of India (RBI):

Establishment– April 1, 1935
Headquarters– Mumbai, Maharashtra
Governor– Shaktikanta Das
Deputy Governors– Mahesh Kumar Jain, Michael Debabrata Patra, M. Rajeshwar Rao, T. Rabi Sankar