What is the repo rate given by the Reserve Bank of India’s (RBI) Monetary Policy Committee (MPC) as on 7 April 2021?
4%
Understanding the RBI Repo Rate on April 7, 2021
The question asks about a specific monetary policy rate set by the Reserve Bank of India (RBI) on a particular date: April 7, 2021. This rate is known as the repo rate. The repo rate is a crucial tool used by the RBI's Monetary Policy Committee (MPC) to manage liquidity in the banking system and influence inflation.
What is the Repo Rate?
The repo rate is the interest rate at which commercial banks borrow money from the Reserve Bank of India against government securities. It is a key policy rate that helps the RBI control the money supply and credit conditions in the economy. A lower repo rate encourages banks to borrow more, potentially leading to increased lending to businesses and individuals, stimulating economic activity. Conversely, a higher repo rate makes borrowing more expensive for banks, which can help cool down an overheated economy and control inflation.
The Role of the Monetary Policy Committee (MPC)
The Monetary Policy Committee (MPC) is a six-member body responsible for fixing the benchmark policy interest rate (repo rate) to keep inflation within the target set by the government. The committee meets periodically to review the economic situation and decide on the appropriate monetary policy stance, including setting the repo rate.
RBI Repo Rate as on April 7, 2021
As on April 7, 2021, the Reserve Bank of India's (RBI) Monetary Policy Committee announced its first bi-monthly monetary policy statement for the financial year 2021-22. In this meeting, the MPC decided to keep the key policy rates unchanged. The repo rate was maintained at the level set in earlier policies.
The specific repo rate as decided by the RBI MPC and effective from April 7, 2021, was 4%.
| Key Aspect | Details |
|---|---|
| Date of Policy Announcement | April 7, 2021 |
| Authority Setting the Rate | RBI Monetary Policy Committee (MPC) |
| Policy Rate in Question | Repo Rate |
| Repo Rate as on April 7, 2021 | 4% |
This rate was maintained through several subsequent policy meetings in 2021 and early 2022, reflecting the RBI's stance to support economic recovery amidst prevailing conditions.
Analysis of Options
Let's look at the provided options in the context of the RBI repo rate on April 7, 2021:
- 2%: This rate is significantly lower than the actual rate on that date.
- 4%: This rate correctly matches the repo rate announced by the RBI MPC on April 7, 2021.
- 3%: This rate is lower than the actual rate on that date.
- 5%: This rate is higher than the actual rate on that date.
Based on the historical data of the RBI's monetary policy decisions, the repo rate as on April 7, 2021, was indeed 4%.
Revision Table: RBI Policy Rates
| RBI Policy Rate | Definition | Purpose |
|---|---|---|
| Repo Rate | Rate at which RBI lends money to banks against government securities. | Key tool for controlling liquidity and inflation. |
| Reverse Repo Rate | Rate at which RBI borrows money from banks. | Absorbs excess liquidity from the banking system. |
| Marginal Standing Facility (MSF) Rate | Rate at which banks can borrow funds overnight from RBI under emergency situations. | Acts as a safety valve for banks facing liquidity crunch. |
| Bank Rate | Rate at which RBI lends money to banks without any security. | Also a penal rate, used for long-term loans. Linked to MSF rate. |
Additional Information: RBI Monetary Policy Tools
Apart from the key policy rates like the repo rate, the RBI uses various other tools to manage liquidity and influence credit conditions in the economy. Understanding these tools is important for a comprehensive view of monetary policy.
- Open Market Operations (OMOs): Buying or selling government securities in the open market to inject or absorb liquidity.
- Cash Reserve Ratio (CRR): The percentage of net demand and time liabilities (deposits) that banks must hold as reserves with the RBI. It doesn't earn any interest. Changes in CRR affect the amount of money banks have available to lend.
- Statutory Liquidity Ratio (SLR): The percentage of net demand and time liabilities that banks must maintain in the form of liquid assets like government securities, cash, and gold.
- Moral Suasion: Persuading banks through advice, requests, or appeals to follow RBI's policy and guidelines.
All these tools, including the repo rate, are calibrated by the RBI MPC to achieve objectives like price stability (controlling inflation) while keeping in mind the objective of growth.
Important Questions from Banking Affairs
As per the provisions of Union Budget 2021-22, how many public sector banks have been lined up for disinvestment?
On 25 September 2020,_________ announced that they will launch a contactless debit card-based payment facility through phones called 'Safe Pay', allowing transactions up to ₹20,000 per day.
In November 2020, India and _________ jointly launched Phase 2 of the Rupay card.
In November 2020, the Union Cabinet of India approved the merger of capital-starved Lakshmi Vilas Bank (LVB) with _______________.
In August 2021, ______ opened the first floating ATM in Srinagar on a houseboat at Dal Lake.
