In its first bi-monthly monetary policy review of 2018-19, the Reserve Bank of India’s (RBI’s) six-member monetary policy committee (MPC), headed by Governor Urjit Patel, kept unchanged the key repo rate at 6 per cent and cash reserve ratio at 4 per cent. Also, the reverse repo rate was kept unchanged at 5.75 per cent.
Here are the key highlights of the RBI’s first bi-monthly monetary policy review of 2018-19:
* Key lending rate (repo) unchanged at 6%
* Reverse repo rate remains at 5.75% and marginal standing facility (MSF) rate and Bank Rate at 6.25%
* The monetary policy’s stance has been neutral
* In the fuel and light group, inflation in respect of liquefied petroleum gas declined in line with international price movements. Furthermore, the rate of increase in prices of firewood and chips, and dung cake moderated.
* Models suggest that FY20 real GDP growth will be in the range of 7.4-7.9 per cent
Key differences between Repo Rate and Bank Rate
Repo Rate and Bank Rate have a few similarities. Both are fixed by the central bank and used to monitor and control the cash flow in the market.
They have some prominent differences too, however.
* Bank Rate is charged against loans offered by central bank to commercial banks, whereas, Repo Rate is charged for repurchasing the securities sold by the commercial banks to the central bank.
* Repo Rate is always lower than the Bank Rate.
* Increase in Bank Rate directly affects the lending rates offered to the customer, restricting people to avail loans and impacts the overall economic growth, whereas Increase in Repo Rate is usually handled by the banks and doesn’t affect customers directly.
* No collateral is involved while charging Bank Rate but securities, bonds, agreements and collateral are involved when Repo Rate is charged.
*Comparatively, Bank Rate caters to long-term financial requirements of commercial banks whereas Repo Rate focuses on short- term financial needs.
* Since it is an overnight loan, the loan tenure under the repo rate is 1 one day. On the other hand, the loan tenure under the Bank Rate is 28 days.
Projects GDP growth to 7.4% in 2018-19:
According to RBI, GDP growth is projected to strengthen to 7.4% cent in 2018-19 – in the range of 7.3-7.4% in H1 and 7.3-7.6% in H2.
“The MPC notes that growth has been recovering and the output gap is closing. This is also reflected in a pick-up in credit offtake in recent months,” the central bank said.