Introduction:

Monitory policy of R.B.I refers to the policy of the central bank with regards to the use of monetary instruments. Under its control to achieve the goals which is specified. This policy formulated by the central bank RBI and relates to the monetary matters of the country. The monitory policy committee met on Feb 2024 and based on an assessment of current microeconomics situations and Outlook. It voted unanimously to keep the policy repo rate unchanged at 6.50.

Charting a course different from that adopted by most global Central banks, the monetary policy committee of the RBI left key policy rates unchanged and retained its accommodative policy stance to support the uneven economic recovery in the wake of the covid pandemic. Reserve Bank of India conducted the 6th and the last monitor policy meeting for 2021 and 22 between February 8 to 2022 the next meeting of the monetary policy is scheduled during April 6 to 8  2022. The monetary policy Committee came out with their bimonthly policy statement on June. 7, 2024 and announced that the Repo Rate unchanged at 6.50%.

The Monetary Policy of the Reserve Bank of India (RBI) is a crucial tool used by the central bank to regulate the money supply, manage inflation, and stabilize the Indian economy. The policy framework aims to achieve balanced economic growth, maintain price stability, and ensure financial stability. This review provides an overview of the key aspects, objectives, and recent trends in the RBI’s monetary policy.

Objectives of Monetary Policy:

The primary objectives of the RBI’s monetary policy include:

• Inflation Control: Keeping inflation within the target range (currently 4% ± 2%) to maintain price stability.
• Economic Growth: Supporting sustainable economic growth by adjusting interest rates and liquidity.
• Exchange Rate Stability: Ensuring stability of the Indian Rupee against foreign currencies.
• Financial Stability: Mitigating risks to the financial system, including managing liquidity and credit flow.

The other objectives are:

1. Repo rate: It is the fixed interest rate at which banks can borrow overnight liquidity from the reserve Bank of India against the collateral of Government and other approved security under the liquidity adjustment facility. The interest rate at which the RBI lends to commercial banks. It is the primary tool to control inflation.
2. Reserve repo rate: It is the fixed interest rate at which RBI can absorb liquidity from banks on and overnight basis. Against the collateral of eligible government securities under the LAF. The rate at which the RBI borrows from banks, influencing liquidity absorption.
3. Liquidity Adjustment Facility: The LAF has overnight as well as term repo auction under it. The term repo helps in the development of the interbank term money market. This market is the benchmark for the pricing of loans and deposit. This helps in improving the transaction or transmission of monitory funds. As per the evolving market conditions the RBI also conduct variable interest reverse repo rate.
4. Marginal Standing Facility: MSF is a provision that enabled the schedule commercial banks to borrow an additional amount of overnight money from the RBI .banks can do this by dipping into their statutory liquidity ratio, portfolio up to a limit at a penal rate of interest. This helps the bank to sustain the unanticipated liquidity shocks faced by them.
5. Cash Reserve Ratio (CRR): The percentage of deposits banks must hold as reserves with the RBI. Adjusting the CRR impacts liquidity.
6. Statutory Liquidity Ratio (SLR): The proportion of deposits banks are required to invest in specified securities. It affects banks’ lending capacity.

also read: explain the objectives and performances of Nationalization of commercial Banks.