HIKE IN REPO RATE
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Context
- The Reserve Bank of India's Monetary Policy Committee has raised the Repo rate by 35 bps to 6.25% in its continued bid to curb the spiralling inflation. RBI has now hiked the repo rate, or the short-term lending rate at which banks borrow from the central bank, by 225 basis points since May 2022.
Key Takeaways
- The MPC decided by a majority of 5 members out of 6 to increase the policy repo rate by 35 basis points.
- The standing deposit facility (SDF) rate stands adjusted to 6.00%, and the marginal standing facility (MSF) rate and the Bank Rate to 6.50%.
- The MPC also decided by a majority of 4 out of 6 members to remain focused on the withdrawal of accommodation to ensure that inflation remains within the target going forward while supporting growth.
- The governor highlighted that core inflation is exhibiting stickiness. While headline inflation may ease through the rest of the year and Q1FY24, it is expected to rule above the target.
- System liquidity remains in surplus with an average daily absorption under the liquidity adjustment facility (LAF) of ₹1.6 lakh crore in November 2022. Since then, it has gone up to ₹2.6 lakh crore as on December 5.
- The size of India's forex reserves is comfortable. It has gone up from US$524.5 billion on October 21, 2022 to US$561.2 billion as on December 2, 2022 covering around nine months of projected imports for FY23.
- The Governor said that India's net balance under services and remittances remains in large surplus, partly offsetting the trade deficit.
- In a bid to further enhance the capabilities in UPI, the RBI is introducing single-block-and-multiple-debits functionality. The facility will enable a customer to block funds in his/her account for specific purposes, which can be debited whenever needed.
- Expanding the scope of the Bharat Bill Payment System (BBPS), it will now include all categories of payments and collections, both recurring and non-recurring, and for all categories of billers (businesses and individuals).
- Resident entities will now be permitted to hedge their gold price risk on recognised exchanges in the IFSC. "This measure will benefit importers/exporters of gold such as jewellers and industries which use gold as an intermediate or raw material.
Must-Read Articles:
MPC: https://iasgyan.in/daily-current-affairs/monetary-policy-committee-highlights
CRR and Repo: https://www.iasgyan.in/daily-current-affairs/hike-in-repo-rate-and-crr-8