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Monetary policy (Instruments (Reverse Repo Rate (fixed interest rate, RBI…

- - - - help develop the inter-bank term money market
      - can set market based benchmarks for pricing of loans and deposits
      - Hence improve transmission of monetary policy
    - - Overnight repo auctions
      - Term repo auctions
      - variable interest rate reverse repo auctions - based on demand
  - - - Unencumbered government securities ie free of debt or other financial liability.
      - cash
      - gold
  - - - coming from large capital inflows
      - RBI sells short-dated government securities and treasury bills
      - Cash from sale is held in a separate government account with RBI
- - - - 12 banks whose spreads widened
        
        six banks took up to six months to pass on the benefit of lower MCLRs to their lending rates
        
        remaining six banks passed on the benefit of their lower MCLRs, but only partially even after six months
    - - lending rate on such loans should be linked to one of the four benchmark
        
        Reserve Bank of India’s policy repo rate.
        
        Government of India 91-day treasury bill yield.
        
        Government of India 182-day treasury bill yield.
        
        Any other benchmark market interest rate produced by the Financial Benchmark India Private Ltd - pvt ltd - vijay baskar comt
      - Spread (margin) over the benchmark rate
        
        to be decided wholly at banks’ discretion at the inception of the loan
        
        should remain unchanged through the life of the loan, unless the borrower’s credit assessment undergoes a substantial change and as agreed upon in the loan contract
    - - Apr 1 2019
    - - reduction in credit costs in the long run for retail and MSME Sector
      - common benchmark, which will make it easier for borrowers to track it
      - inline with international best practices
  - - - Base rate : banks calculated as they seemed fit
      - MCLR : Based on a set formula
    - - Marginal Cost of funds - borrowings and networth
      - Negative Carry on CRR
      - Operating Costs
      - Tenor premium - loan commitments with longer tenor
- - - - Consumer Price Index (CPI) inflation as the target
      - upper tolerance limit of 6 per cent and the lower tolerance limit of 2 per cent
    - - (a) the average inflation is more than the upper tolerance level of the inflation target for any three consecutive quarters or
      - (b) the average inflation is less than the lower tolerance level for any three consecutive quarters
- - - - Key determinant of growth
- - - - a. the resolution adopted by the MPC;
      - b. the vote of each member on the resolution, ascribed to such member; and
      - c. the statement of each member on the resolution adopted.
  - - - Sources of inflation
      - forecast of inflation for 6-18 months ahead.
- - - - Section 45ZB of the amended RBI Act, 1934
      - 6 member by the Central Government by notification in the Official Gazette
        
        Govt representatives - period of four years or until further orders, whichever is earlier
      - determines the policy interest rate required to achieve the inflation target.
    - - Assists MPC
  - - - By Financial Markets Committee (FMC) on daily basis
      - review the liquidity conditions so as to ensure that the operating target of the weighted average call money rate (WACR)
    - - Technical Advisory Committee (TAC) on monetary policy
        
        Experts from monetary economics, central banking, financial markets and public finance
        
        advised (only advisory) the Reserve Bank on the stance of monetary policy
        
        Ceased to exist after MPC