Context

• RBI Governor Sanjay Malhotra chaired his first Monetary Policy Committee (MPC) meeting, held from 5-7 February, 2025.

Announced Policy Rates

Reserve Ratios

Key Findings of MPC Meeting

• The Reserve Bank of India cut the repo rate by 25 bps to 6.25%.
• The MPC decided to continue with the neutral stance.
• India’s FY26 growth aims to 6.7% from 6.6%.
• RBI projected inflation for FY'25 at 4.8%, FY'26 projection at 4.2%.
• System liquidity did turn into deficit in Dec 2024 and Jan 2025.
• Global economy is growing below the historical average.
• Headline Inflation softened in November-December 2024, down from a peak of 6.2% in October.
• India's foreign exchange reserves stood at over $630 billion as of January 31, 2025.
• MPC announced banks to have an exclusive domain name 'http://fin.in' to check cyber frauds, registration to start in April.

Monetary Policy Committee (MPC)

• Works according to RBI Act 1934
• Chairperson: RBI Governor
• Consist of 6 Members: 3 Members from RBI and 3 are appointed by the Central Government.
• Required to meet at least 4 times in a year.
• Quorum Required to hold a meeting: 4 members

Various Policy Stances

• Accommodative
  • An accommodative stance means the central bank is willing to cut the interest rates, to expand the money supply to boost economic growth.
• Neutral
  • A ‘neutral stance’ suggests that the central bank can either cut rate or increase rate.
• Hawkish
• A hawkish stance indicates that the central bank is willing to hike interest rates to curb money supply and thus reduce the demand.the central bank’s top priority is to keep the inflation low.
• Calibrated Tightening
  • It means the central bank may not go for a rate increase in every policy meeting but the overall policy stance is tilted towards a rate hike.

Key terms and their definitions

• Repo Rate: The Rate at which RBI lends money to commercial banks and financial institutions in India against government securities.
• Liquidity: Liquidity refers to the ease with which an asset or security can be quickly bought or sold in the market without significantly affecting its price.
• CPI: Consumer Price Index (CPI) measures the average change in prices paid by consumers over a period of time for a basket of goods and services.
• Bank Rate: Bank rate is the rate charged by the central bank for lending funds to commercial banks.
• Standing Deposit Facility (SDF): SDF is a financial tool that allows banks to deposit excess liquidity with the RBI without any security or collateral.
• Marginal standing facility (MSF): It is a window for banks to borrow from the Reserve Bank of India in an emergency situation when interbank liquidity dries up completely.
• Basis Point (bp): It is a unit of measurement used in banking and finance to measure changes in interest rates. One basis point is equal to 0.01% or 1/100th of a percent.

RBI

• Recommendation: Hilton Young Commission (1926)
• Statutory basis: RBI Act, 1934
• Estb: 1st April, 1935
• HQ: Mumbai
• Nationalised: 1949
• First Governor: Osborne Smith (1935-37)
• First Indian Governor: C.D. Deshmukh (1943-49)
• Current Governor: Sanjay Malhotra