Repo rate kept unchanged at 6.5%

Reserve Bank of India (RBI) in its fifth bimonthly monetary policy review for financial year 2018-19 has decided to maintain status quo in policy rates by keeping repo rate unchanged at 6.5%.

• The reverse repo rate has also been maintained at 6.25%.
• This decision was taken by RBI's six member Monetary Policy Committee (MPC) headed by RBI Governor Urjit Patel.

Details:

• The decision of MPC is consistent with its stance of calibrated tightening of monetary policy in consonance with the objective of achieving medium-term target for consumer price index (CPI) inflation of 4% within band of +/- 2 per cent, while supporting growth.
• It has projected that retail inflation projection lowered in the range of 2.7-3.2% for the 2nd half of 2018-19; 3.8-4.2% in the first half of 2019-20.
• It has forecasted GDP growth for 2018-19 at 7.4% and 7.5% for the first half of 2019-20.

About Policy Rates:

Repo rate:

• It was unchanged at 6.5%. 
• It is the rate at which the RBI lends to its clients generally against government securities.

Reverse Repo Rate:

• It was unchanged at 6.25%. 
• It is the rate at which banks lend funds to the RBI.

Marginal Standing Facility (MSF) Rate:

• It was unchanged at 6.75%. 
• It is the rate at which scheduled banks can borrow funds overnight from the RBI against government securities.
• It is a very short term borrowing scheme for scheduled banks.

Bank Rate:

• It was unchanged at 6.75%.
• It is the rate charged by the central bank for lending funds to commercial banks.
• Higher bank rate will translate to higher lending rates by banks. 
• It influences lending rates of commercial banks.

Cash Reserve Ratio (CRR):

• It was unchanged at 4%. 
• It is the amount of funds that banks have to keep with the RBI. 
• The RBI uses CRR to drain out excessive money from the system.

Statutory Liquidity Ratio (SLR):

• It was cut by 25 basis points to 19.25% from January 1, 2019.
• It is the amount that banks have to maintain as a stipulated proportion of their net demand and time liabilities (NDTL) in the form of liquid assets like cash, gold and unencumbered securities, treasury bills, dated securities etc.
• It will be reduced by 25 basis points every quarter until it reaches the 18% level.

Question:

Q. Reserve Bank of India (RBI) in its fifth bimonthly monetary policy review for financial year 2018-19 has decided to maintain status quo in policy rates by keeping repo rate unchanged at?
a. 6.0%
b. 6.5%
c. 7.0%
d. 7.5%