Highlights of the RBI Monetary Policy Committee meet

The Monetary Policy Committee held its meeting from October 7, 2020 to October 9, 2020.  The monetary policy committee was recently formed and its members were recently appointed by the Government of India. Economists Jayant R Varma, Shashank Bhide and Ashima Goyal were made the part of the monetary policy committee.

Key Highlights

  • The committee has kept the repo unchanged at 4%.
  • The committee has decided to keep Reverse Repo Rate at 3.5% as earlier.
  • The MPC had met in August 2020 during which repo rate and reverse repo rate were maintained at 4% and 3.3% respectively.
  • They decided to conduct Open Market Operations (OMO) of worth Rs 20,000 crores.
  • Ways and Means Advance Limits of the Centre has been kept at Rs 1.25 lakh crores.
  • RBI announced on-tap TLTRO on Rs 1 trillion money oat 4% till March 2021.
  • GDP for the fiscal year 2021 have been predicted at 9.5% with chances of strong rebound.

Open Market Operation (OMO)

The Central Bank provides liquidity to the banks in the form of currency through this operation. The central bank either buy or sell government bonds in the open market. The OMO is used as primary means of implementing the monetary policy. Primary aim of OMO is to supply liquidity to the commercial banks and absorbing surplus liquidity from commercial banks sometimes. This is done to manipulate the short-term interest rate and to supply base money in an economy. India is facing severe economic slowdown amid the corona lockdown. Thus, RBI is conducting the OMO in order to inject more currency into the economy.

Ways and Means Advance Limits

These are short-term loan facilities allowing the states and centre to borrow funds from RBI. This is done in order to help the state and central governments to balance the mismatch between expenditure and receipts. The interest rate imposed under the process is the repo rate.

Targeted Long Term Repo Operations (TLTRO)

It is tool allowing banks to borrow funds for one or two year.  The funds are borrowed at the Repo Rate.

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