- Niharika Mishra
The monetary policy committee (MPC) of the Reserve Bank of India (RBI) kept the repo rate unchanged at 6 percent on Wednesday. In its last bi-monthly policy review for the current fiscal, the committee kept reverse repo rate under the LAF (liquidity adjustment facility) unchanged at 5.75 percent and the marginal standing facility (MSF) rate and the bank rate at 6.25 percent.
Last week, Finance Minister Arun Jaitley increased government spending for rural areas and announced a larger fiscal deficit target in his annual budget speech 2018 on 1st February.
“There is a need for vigilance around the evolving inflation scenario in the coming months,” the central bank said in its statement.
The MPC, which sets the key policy rates, has kept the repo rate unchanged four out of five times it met this financial year. RBI had last cut the policy rate in August, from 6.25 percent to 6 percent.
Benchmark Sensex fell 113 points in volatile trade to end at 34,082.71 on Wednesday after the Reserve Bank left the key policy rate unchanged. The barometer had lost 2,087.31 points in the previous six straight sessions. The NSE Nifty index too ended 21.55 points or 0.21 percent down at 10,476.70. Intra-day, it travelled between 10,614 and 10,446.40.
Important jargons and their meanings:
Repo rate: Repo rate is the rate of interest at which the central bank lends money on short-term to banks.
Reverse Repo rate: It is the rate of interest at which RBI borrows money from commercial banks.
Marginal Standing Facility: MSF rate refers to the rate at which the scheduled banks can borrow funds overnight from RBI against government securities. MSF is a very short-term borrowing scheme for scheduled commercial banks.
However, on Wednesday, the central bank announced that it will link the base rate for loans given by banks to the MCLR starting April 1, 2018, i.e. from the new financial year. The Marginal Cost of Funds based Lending Rates (MCLR) system was introduced on April 1, 2016, to tackle the problems of the Base Rate Regime.
With this, the cost of borrowing for those citizens who have availed home loans before April 2016 and are stuck in the older base rate regime may get cheaper.