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Monetary Policy of India: RBI Repo Rate, CRR, SLR & MPC

Introduction

Monetary Policy is the macroeconomic policy laid down by the central bank (RBI) to manage money supply and interest rates.

1. Quantitative Tools

• Repo Rate: The rate at which RBI lends money to banks for short term. (Increasing Repo Rate reduces inflation).
• Reverse Repo Rate: The rate at which RBI borrows from banks.
• CRR (Cash Reserve Ratio): % of deposits banks must keep with RBI as cash. No interest paid.
• SLR (Statutory Liquidity Ratio): % of deposits banks must keep with themselves in liquid assets (Gold, G-Secs).

2. Monetary Policy Committee (MPC)

Constituted under RBI Act. Has 6 members (3 from RBI, 3 from Govt). The Governor has a casting vote. Aim: Keep inflation at 4% (+/- 2%).

3. Stance of Policy

• Hawkish: Tightening (Raising rates).
• Dovish: Easy money (Lowering rates).
• Accommodative: Willing to cut rates if needed.

Conclusion

A stable monetary policy is essential for macroeconomic stability and sustainable growth.