RBI & Monetary Policy

Abstract

On September 29, 2015, the Reserve Bank of India announced reduction of the policy repo rate under the liquidity adjustment facility (LAF) by 50 basis points from 7.25 per cent to 6.75 per cent with immediate effect. It has also kept the cash reserve ratio (CRR) of scheduled banks unchanged at 4.0 per cent of net demand and time liability (NDTL). Monetary Policy formulated and regulated by Reserve Bank of India (RBI) is a great indicator of the health Indian economy. The main purpose of this policy is to create a competitive environment and orderly conditions in financial sector, assure timely and adequate delivery of credit at reasonable cost and to achieve the growth and stabilityof the economy by facilitating certain hindrances via some rates and ratios. The most common among these are bank rate, repo rate, reverse repo rate, cash reserve ratio and statutory liquidity ratio. In general, we presume that inflation is the only or the strongest deciding factors for such changes, but it is only the outcome of some events. This study tries to explore all the possible factors, before joining of the present Governor of RBI Raghuram Rajan, which were forcing RBI directly or indirectly to fix the rates and ratios.