After a gap of about 9 years, the RBI (Reserve Bank of India) has increased the bank rate by 3.50% to 9.5% with immediate effect.
According to RBI notification, “This increase should be viewed and understood as one-time technical adjustment to align the Bank Rate with the marginal standing facility (MSF) rate rather than a change in the monetary policy stance”
Bank Rate..!
The Bank Rate has lost its significant as a monetary policy tool as the RBI presently signals stance through changes in repo, the rate at which banks borrow short-term funds from RBI.
The Bank Rate, which is the standard rate at which the RBI buys or re-discount bills of exchange or other commercial paper, is presently used as a penal rate which the banks have to pay for their failure to meet the mandatory CRR (Cash Reserve Ratio) and SLR (Statutory Liquidity Ratio). The Bank Rate, which has been increased by 3.5% 9.50% was kept unchanged since April 2003.
According to RBI, it should technically be higher than the repo rate, which is the policy rate. The repo rate currently stands at 8.5%, while the reverse repo rate is 7.5%.
It was kept unchanged, “mainly for the reason that monetary policy signalling was done through modulations in the reverse repo rate and the repo rate under the Liquidity Adjustment Facility (till May 3, 2011) and the policy repo rate under the revised operating procedure of monetary policy (from May 3, 2011 onwards).
RBI added, “under the revised operating procedure, MSF, instituted at 1% above the policy repo rate, has been in operation, which in many ways serves the purpose of the Bank Rate.”
While the policy repo rate and the MSF rate have become operational, the bank rate continued to remain at 6%.
According to RBI notification, “This increase should be viewed and understood as one-time technical adjustment to align the Bank Rate with the marginal standing facility (MSF) rate rather than a change in the monetary policy stance”
Bank Rate..!
The Bank Rate has lost its significant as a monetary policy tool as the RBI presently signals stance through changes in repo, the rate at which banks borrow short-term funds from RBI.
The Bank Rate, which is the standard rate at which the RBI buys or re-discount bills of exchange or other commercial paper, is presently used as a penal rate which the banks have to pay for their failure to meet the mandatory CRR (Cash Reserve Ratio) and SLR (Statutory Liquidity Ratio). The Bank Rate, which has been increased by 3.5% 9.50% was kept unchanged since April 2003.
According to RBI, it should technically be higher than the repo rate, which is the policy rate. The repo rate currently stands at 8.5%, while the reverse repo rate is 7.5%.
It was kept unchanged, “mainly for the reason that monetary policy signalling was done through modulations in the reverse repo rate and the repo rate under the Liquidity Adjustment Facility (till May 3, 2011) and the policy repo rate under the revised operating procedure of monetary policy (from May 3, 2011 onwards).
RBI added, “under the revised operating procedure, MSF, instituted at 1% above the policy repo rate, has been in operation, which in many ways serves the purpose of the Bank Rate.”
While the policy repo rate and the MSF rate have become operational, the bank rate continued to remain at 6%.
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