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| RBI Monetary Policy |
The Reserve Bank of India reviews its Monetary and Credit policy bimonthly or six times a year. The Monetary policy basically determines the supply and control of money in the Indian economic system. It also determines the rate of interest and economic overview of both past and future.
Expectation in Policy
The next bimonthly RBI monetary policy would be announced on 4th April 2019 at 2.30pm during market hours. As the inflation is under control and IIP growth is slow, to boost the economy RBI can reduce 0.25 bps points CRR. The primary intention of the CRR cut is to boost the economy, it will also be the last gift from the Modi Government for the current 5 years terms. The Banking and Financial Services sector is already rising since last one month, the market can see some correction in Bank Nifty after the RBI monetary policy.
The main objective of RBI Monetary Policy are:
To maintain price stability
To ensure adequate flow of credit to the productive sectors of the economy.
Stability to the national currency
Growth in employment and income.
The RBI bi-monthly monetary policy applies to all banks whether private or PSU. The main tools to control the Monetary and Credit Policy are as follows:
CRR
CRR-Cash Reserve Ratio (CRR) is the amount of funds that the banks have to keep with the RBI. If the central bank ie Reserve Bank of India (RBI) decides to increase the CRR, the available amount with the banks comes down and vice versa. The RBI uses the CRR to drain out excessive money from the system.
SLR
Statutory liquidity ratio is the minimum percentage of total deposits with the banks that they have to maintain in the form of cash, gold or approved government securities before providing credit to the customers. The SLR is determined by a percentage of total demand and time liabilities.
Repo Rate
Repo Rates-Repo rate is the rate at which the central bank of a country ie Reserve Bank of India lends money to commercial banks in the event of any shortfall of funds. Repo rate is used by monetary authorities to control inflation.
Reverse Repo Rate
Reverse Repo Rate-Reverse repo rate is the rate at which the Reserve Bank of India borrows money from commercial banks within the country. It is a monetary policy instrument which can be used to control the money supply in the country.
MFS
Marginal Standing Facility Rate (MFS)-Marginal Standing Facility is a new Liquidity Adjustment Facility (LAF) window created by Reserve Bank of India in its credit policy of May 2011. MSF is the rate at which the banks are able to borrow overnight funds from RBI against the approved government securities.
You can also read our Stock market outlook for the week, Bull or Bear here
What is Hawkish and Dovish Policy:
We have heard many times that the Monetary Policy is Hawkish or Dovish or even vigilance like an Owl. What has the birds of prey got to do with RBI Monetary Policy. Yes it has got some resemblance with those birds
A Monetary policy that is focused on raising the interest rate to control inflation is thought of as Hawkish policy. Higher rates find difficult to borrow money and can hinder economic growth. Whereas when RBI lower interest rate in order to boost the economic growth, it is known as Dovish. But when RBI maintain the status quo, it means to wait and watch and more like vigilance officer with great wisdom then it is known as RBI is like Owl.
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Happy Investing!
Finogyan Team
Happy Investing!
Finogyan Team
