RBI Monetary policy: From Repo Rate to Marginal Standing facility, know all the instruments

Monetary policy refers to the policy of the central bank with regard to the use of monetary instruments under its control to keep the inflation of the country in check to meet the overall financial objectives of the government.

RBI Monetary Policy (Source: PTI)

New Delhi: The Reserve Bank of India will announce its monetary policy decision review before noon on Thursday. "The Monetary Policy Committee (MPC) meet during February 5 to 7, 2019 for the sixth bi-monthly Monetary Policy Statement for 2018-19. The RBI's Monetary Policy Committee (MPC) headed by began a 3-day meet on February 5 to decide on key rates amid expectations it would change its policy stance to neutral on low inflation but may not cut rates due to fiscal challenges and rising oil prices. Monetary policy refers to the policy of the central bank with regard to the use of monetary instruments under its control to keep the inflation of the country in check to meet the overall financial objectives of the government. The Reserve Bank of India (RBI) is vested with the responsibility of conducting monetary policy. This responsibility is explicitly mandated under the Reserve Bank of India Act, 1934. Repo Rate: The (fixed) interest rate at which the Reserve Bank provides overnight liquidity to banks against the collateral of government and other approved securities under the liquidity adjustment facility (LAF). Reverse Repo Rate: The (fixed) interest rate at which the Reserve Bank absorbs liquidity, on an overnight basis, from banks against the collateral of eligible government securities under the LAF. Liquidity Adjustment Facility (LAF): The LAF consists of overnight as well as term repo auctions. Progressively, the Reserve Bank has increased the proportion of liquidity injected under fine-tuning variable rate repo auctions of range of tenors. The aim of term repo is to help develop the inter-bank term money market, which in turn can set market based benchmarks for pricing of loans and deposits, and hence improve transmission of monetary policy. The Reserve Bank also conducts variable interest rate reverse repo auctions, as necessitated under the market conditions. Marginal Standing Facility (MSF): A facility under which scheduled commercial banks can borrow additional amount of overnight money from the Reserve Bank by dipping into their Statutory Liquidity Ratio (SLR) portfolio up to a limit at a penal rate of interest. This provides a safety valve against unanticipated liquidity shocks to the banking system. Corridor: The MSF rate and reverse repo rate determine the corridor for the daily movement in the weighted average call money rate. Bank Rate: It is the rate at which the Reserve Bank is ready to buy or rediscount bills of exchange or other commercial papers. The Bank Rate is published under Section 49 of the Reserve Bank of India Act, 1934. This rate has been aligned to the MSF rate and, therefore, changes automatically as and when the MSF rate changes alongside policy repo rate changes.