RBI MPC Meet / What is monetary policy, repo rate and CRR? Which was mentioned by the RBI governor

RBI MPC Meet: The Reserve Bank of India (RBI) recently took some important decisions in the Monetary Policy Committee (MPC) meeting. During this, Governor Shaktikanta Das decided to keep the repo rate stable, while the Cash Reserve Ratio (CRR) was reduced to 4%, which was earlier 4.5%. These changes may seem technical, but they have a direct impact on our daily lives. Let's understand these policies and analyze their impact.

RBI and Monetary Policy: Role and Importance

The Reserve Bank of India (RBI) regulates the country's banking system and economy. It was established on 1 April 1935, and in 1949 it was brought under the Government of India. The Monetary Policy Committee (MPC) meets every two months and decides whether interest rates need to be changed or not. These decisions are made to maintain economic stability and control inflation.

Repo Rate: What is it and its effect?

Repo rate is the interest rate at which RBI provides short-term loans to banks. When banks take money by pledging their government securities, RBI charges interest on it, which is called repo rate.

Effect of increasing repo rate

Taking loan becomes expensive.

Availability of money in the market is less.

Helps in controlling inflation.

Effect of decreasing repo rate

Taking loan becomes cheaper.

It is easier to take loan, which increases consumer spending.

Liquidity of money increases in the economy.

CRR (Cash Reserve Ratio): A safety shield

Cash Reserve Ratio (CRR) is the ratio that banks have to keep a part of their total deposits as cash with RBI.

Effect of reduction in CRR

Banks have more money available to give loans.

Liquidity increases in the market, which accelerates economic activities.

Effect of increasing CRR

Banks have less money to give loans.

Cash can be controlled, which brings inflation under control.

Benefits of monetary policy

Through monetary policy, RBI ensures that there is a balanced amount of money in the economy. Changes in repo rate and CRR:

Inflation control: By increasing or decreasing the money in the market, it helps in keeping inflation stable.

Effect on loan and EMI: The cost of loan is directly linked to the repo rate. Decreasing the repo rate can reduce your EMI.

Effect on savings: Changes in interest rates affect the interest rate on your fixed deposit and savings account.

Conclusion

The monetary policy of the Reserve Bank of India is not only important for banks and financial institutions, but it also has a big impact on the pocket of the common man. Be it the EMI of the loan, the interest rate on savings, or the level of inflation—these decisions affect all these aspects. In such a situation, it is very important for us to understand these policies and assess their impact.