RBI's Monetary Policy Statement September 2022: Check the policy rates and changes here.

On the basis of current and evolving macroeconomic situation, Monetary Policy Committee (MPC) at its meeting today (30th September, 2022) decided to make changes to policy rates. Here are some key highlights of Monetary Policy Statement September 2022 by RBI:

• Reserve Bank of India’s monetary policy has increased the policy repo rate under the liquidity adjustment facility (LAF) by 50 basis points to 5.90% with immediate effect.
• Standing deposit facility (SDF) rate stands adjusted to 5.65% and the marginal standing facility (MSF) rate and the Bank Rate to 6.15%.
• MPC also decided to remain focused on withdrawal of accommodation to ensure that inflation remains within the target going forward, supporting growth.
• Real gross domestic product (GDP) grew year-on-year (y-o-y) by 13.5% in Q1:2022-23.
• Gross value added (GVA) rose by 12.7% in Q1:2022-23.
• CPI inflation rose to 7.0% (y-o-y) in August 2022 from 6.7% in July as food inflation moved higher, driven by prices of cereals, vegetables, pulses, spices, and milk.
• Fuel inflation moderated with reduction in kerosene prices, though it remained in double digits.
• Core CPI inflation remained sticky at heightened levels, with upside pressures across various constituent goods and services.
• MPC also decided to remain focused on withdrawal of accommodation to ensure that inflation remains within the target going forward, while supporting growth.
• India’s foreign exchange reserves were placed at US$ 537.5 billion, as on September 23, 2022.

Monetary Policy Rates September 2022

What is MPC (Monetary Policy Committee)?

• Monetary Policy Committee of India is a committee of RBI, which is responsible for fixing the benchmark interest rate in India.
• Section 45ZB of the amended RBI Act, 1934 provides for an empowered 6-member monetary policy committee (MPC) to be constituted by the Central Government to determine the interest rate that is required to achieve the inflation target.
• The MPC is required to meet at least four times a year.
• MPC is a 6-member body and is headed by RBI governor. Out of these, 3 members are from RBI and 3 members are nominated by Central Government.

Current Members of Monetary Policy Committee

Current Members of Monetary Policy Committee are as follows:

• Shaktikanta Das (Current RBI Governor)
• Shashanka Bhide
• Ashima Goyal
• Rajiv Ranjan
• Michael Debabrata Patra 
• Jayanth R. Varma

Instrument of Monetary Policy

RBI use following two measures to regulate the monetary policy:

• Quantitative Tools
• Qualitative Tools

1. Quantitative Tools

• Cash Reserve Ratio (CRR): Amount of funds that the banks are bound to keep with Reserve bank of India as a certain percentage of their Net Demand and Time Liabilities (NDTL). 
• SLR (Statutory Liquidity Ratio): All commercial banks in India are required to keep a given percentage of their demand and time deposits (Net demand and time liabilities or NDTL) as liquid assets in their vault itself. 
  • Note: NDTL mainly consist of Time liabilities and Demand liabilities.
    • Time liabilities include:
      (1) Money deposited in Fixed deposits (FD)
      (2) Cash certificates
      (3) Gold deposits. etc.
    • Demand liabilities include:        
      (1) Money deposited in savings account
      (2) Money deposited in current account
      (3) Demand drafts, etc.
• Open Market Operations (OMO): Method in which RBI buys and sells Union and State Govt securities, bills, and bonds in the open market to expand or contract the amount of money in the system.
• Market Stabilizing Scheme (MSS): In MSS, RBI sells Govt securities, Treasury bills and Cash Management Bills to absorb excess liquidity in the market.
• Liquidity Adjustment Facility (LAF): Tool used by RBI to control short-term money supply. It has two instruments:
  • Repo Rate: interest rate at which RBI provides loans to commercial banks by mortgaging their dated government securities and treasury bills. It is also known as 'Ready Forward Transaction'. 
  • Reverse Repo Rate: interest rate at which RBI borrows from commercial banks by mortgaging its dated government securities and treasury bills. 
• Marginal Standing Facility (MSF): Rate at which RBI lends short term loan to commercial banks for their emergency requirements. It is generally given for a duration of a night to 14 days.
• Bank Rate: Rate fixed by RBI at which it re-discounts bills of exchange and government securities held by commercial banks. It is also known as the discount rate.
• Long Term Repo Operation (LTRO): Tool under which RBI provides 1 to 3 years money to banks at the prevailing repo rate through RBI's e-Kuber platform

2. Qualitative Tools

1. Credit rationing

• In this, RBI controls maximum amount of credit flow to a certain sector.
• RBI may also mandate for the banks to provide certain fractions of their loans to certain sectors such as priority sector lending etc.

2. Selective Credit control: Tool in the hands of Reserve Bank of India (RBI) to restrict bank finance against sensitive commodities.

3. Margin Requirements

• RBI can prescribe margin against collateral. 
• If RBI raises margin requirement, customers will be able to borrow less.

4. Moral suasion: Method of request or advice by the RBI to the commercial banks to take certain measures as per the trend of economy.

5. Direct Action: RBI issues certain guidelines from time to time based on the current situation in the economy.