RBI Governor Shaktikanta Das will announce the central bank's monetary policy decision at 10 am today, after a three-day meeting with the Monetary Policy Committee. While analysts expect the repo rate to remain unchanged at 6.5%, there might be a downward revision in FY25 GDP growth due to the high base effect. The RBI governor will also discuss current domestic and global economic situations and address a press conference at 12:00 pm. This will be the first monetary policy announcement since RBI hiked its interest rate in February 2023.
Reserve Bank of India Monetary Policy: Repurchase Agreement and Interest Rates
Background
The Reserve Bank of India (RBI), the central bank of India, is responsible for conducting monetary policy and managing the financial system. Monetary policy involves using tools to control the supply of money and interest rates in an economy to achieve macroeconomic objectives such as price stability, economic growth, and financial stability.
One of the primary tools used by the RBI is the repurchase agreement (repo) rate. The repo rate is the interest rate at which the RBI lends short-term funds to commercial banks. By adjusting the repo rate, the RBI can influence the cost of borrowing for banks and ultimately for businesses and consumers.
Recent Developments
On March 30, 2023, RBI Governor Shaktikanta Das announced the monetary policy decision after a three-day meeting with the Monetary Policy Committee. As expected, the repo rate remained unchanged at 6.5%. However, the RBI revised its GDP growth forecast for FY25 downward to 6.4% due to the high base effect.
FAQs
1. Why did the RBI keep the repo rate unchanged?
The RBI may have kept the repo rate unchanged due to concerns about inflation and the need to support economic growth. Inflation remains elevated, and the RBI wants to ensure that it moderates without sacrificing economic momentum.
2. What is the high base effect that led to the downward revision in GDP growth forecast?
The high base effect refers to the impact of high economic growth in a previous period. In this case, the strong GDP growth in FY23 (8.7%) has created a high base for comparison, making it challenging to achieve the same level of growth in FY25.
3. What is the impact of the repo rate on the economy?
An increase in the repo rate makes borrowing more expensive, which can slow down economic growth by reducing investment and consumption. A decrease in the repo rate makes borrowing cheaper, which can stimulate economic growth.
4. What are the other tools used by the RBI in monetary policy?
Besides the repo rate, the RBI uses other tools such as the reverse repo rate, open market operations, and quantitative easing.
5. What is the role of the Monetary Policy Committee?
The Monetary Policy Committee is a six-member body that advises the RBI on monetary policy decisions. The committee is responsible for setting the repo rate and other monetary policy parameters.
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