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RBI Monetary Policy 2022

Objectives of RBI Monetary Policy

Last Updated 23rd May 2022

  • RBI uses monetary policy tools to increase or decrease the supply of money
  • The key indicators of RBI Monetary Policy along with their current rates in the table given below:
IndicatorCurrent Rate
Repo Rate 4.40%
Reverse Repo Rate3.35%
Marginal Standing Facility Rate4.25%
Bank Rate4.25%

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What is RBI Monetary Policy 2022?

RBI Monetary Policy 2022 is the policy formulated by the Reserve Bank of India to regulate the money matters of the country. The policy takes into account the distribution of credit among users as well as the rate of interest on borrowing and lending. Since India is a developing country,monetary policy is significant in the promotion of economic growth. The policy involves measures taken to control inflation, regulate the supply of money and the cost of credit in the economy. The various instruments of monetary policy include variation in bank rates, other interest rates, supply of currency, etc.In addition to that, the current repo rate, reverse repo rate, marginal standing facility rate and bank rate also comes under the RBI Monetary Policy.

On 04th May 2022, RBI kept the Repo Rate unchanged at 4.40% and Reverse Repo rate at 3.35%. In addition to that, the Marginal Standing Facility rate and the Bank rate stands at 4.25%. This has been done to limit the damage caused to the economy by the second wave of Covid-19.

RBI Monetary Policy Highlights

Key highlights of RBI monetary policy as announced on 04th May 2022, are:

  • Benchmark lending rate kept unchanged 10th time in a row at 4 per cent, reverse repo rate at 3.35%
  • Projects GDP growth at 7.8 pc for next fiscal, against 9.2 pc this fiscal.
  • RBI to continue with accommodative stance to revive and sustain growth; pandemic hold the global economy hostage.
  • Retail inflation projected at 5.3 pc for current fiscal, 4.5 pc in FY23.
  • RBI extends by three months on-tap liquidity facility of ₹ 50,000 crore for healthcare, contact intensive sector.
  • E RUPI digital voucher cap raised from ₹ 10,000 to ₹ 1 Lakh and multiple-use permitted.

Objectives of Recent Monetary Policy of RBI

The main objectives of the recent monetary policy of RBI are as follows:

  • Controlling imports and exports: Monetary policy helps industries to get a loan at a reduced interest rate, which means they can substitute imports with export-oriented units and, in turn, increase exports.
  • Promotion of savings and investments: A monetary policy can impact the savings and investment of the people. A higher rate of interest will result in greater investments and savings, thereby maintaining a healthy cash flow within the economy is one of the motives.
  • Managing business cycles: There are two main stages of a business cycle – boom and depression. monetary policy is one of the most efficient financial tools that can help to control the boom and depression period of business cycles by managing credit distribution and supply of money in the economy.
  • Employment generation: A monetary policy can lead to reduced interest rates, which means small and medium enterprises (SMEs) can easily secure a loan for business expansion. This means more employment generation.
  • Development of infrastructure: The monetary policy by RBI allows concessional funding for the development of infrastructure within the country.
  • Developing and managing the banking sector: The central bank is responsible for managing the entire banking industry. RBI also instructs other banks using the monetary policy to establish rural branches for agricultural development wherever required. Additionally, the government has also set up cooperative and regional rural banks to help farmers receive the financial aid they require in no time.

Monetary Policy Tools

To control inflation, the Reserve Bank of India needs to increase the cost of funds or reduce the supply of money with the help of tools which are divided mainly into two categories – Quantitative and Qualitative tools.

  • Quantitative tools : As the name suggests, quantitative tools are related to the quantity and volume of the money. These are designed to control the total money of the bank credit in the economy. Some of the quantitative tools of RBI monetary policy are:
  • Reverse Ratio : Banks keep aside a certain percentage of cash reserves or RBI approved assets. There are two types of reserve ratio:
    • Cash Reserve Ratio (CRR) : Banks set aside this portion in cash with the RBI. The bank cannot lend this amount to anyone or earn a profit or interest rate on CRR.The current CRR Rate is 4.50%
    • Statutory Liquidity Ratio (SLR) : This portion is set aside by the banks in the form of liquid assets such as gold or RBI approved securities such as government securities. Banks earn interest on these securities, but it’s very low.The current SLR rate is 18.00%.
  • Open Market Operations : The RBI buys and sells government securities in the open market, also referred to as Open Market Operations to control the supply of money.
    When the RBI sells government securities, the liquidity is sucked from the market, and buying securities provides liquidity, which helps to control inflation. The main aim of the open market operation is to keep a check on temporary liquidity mismatches in the market, which happens due to the inflow of foreign capital.

Qualitative tools :Qualitative instruments are also known as selective instruments of the RBI's monetary policy. These are listed as follows:

  • Margin requirements : The RBI mentions a certain margin against collateral. When the RBI raises the margin requirements, customers will be able to borrow less and vice-versa.
  • Selective credit control : Through this method, RBI avoids lending to speculative businesses or selective industries.
  • Moral suasion : With the help of this tool, the central bank persuades other banks to keep money in government securities and not in any other sectors.

Monetary Policy Committee (MPC)

The MPC RBI is responsible for reviewing repo rate, reverse repo rate, CRR, SLR, Bank rate and Marginal standing facility. The meetings of the Monetary Policy Committee are held at least 4 times a year.

The Monetary Policy committee includes a total of six members - three officials of the RBI and three external members nominated by the Government of India. The Governor of the Central Bank is the chairperson ex officio of the MPC RBI. All the decisions are taken by the majority with the Governor having the casting vote in case of a tie. MPC tries to achieve the objective of price stability, economic growth, equity, social justice, and promoting and nurturing of financial institutions.

Market Stabilisation Scheme (MSS)

Market Stabilisation scheme is the instrument used by the RBI in times of excess liquidity. The scheme was brought into operation in the year 2004 to control the surge of US dollars in the Indian market. The RBI uses this technique to repair the excess liquidity prevailing in the market due to the issuance of securities on the Government’s behalf like Treasury bills or Dated securities.

The fund that the RBI raises under the MSS scheme is kept in a separate account from the Government account and is not used by the RBI to fund the regular expenditures. This separate account is called the MSS account. To manage the excess liquidity, the RBI issues securities under the Market Stabilisation Bonds(MSBs). The various financial institutions further purchase these bonds in the country, and the funds earned by the selling of these bonds is kept with the Reserve Bank of India.

Monetary Policy Transmission

Monetary policy transmission is the course of action, wherein the monetary policy decisions taken by the RBI such as the change in the repo rate, are implemented throughout the financial market, and especially in the banking sector. The monetary policy transmission impacts the economic conditions and activities like consumption of funds and the investments portfolio.

One of the most common examples of monetary policy transmission is the impact of the repo rate on the banking sector. While RBI has mandated the banks to link their loan products with the external benchmark, a number of banks like SBI, PNB, etc. have linked their retail loan products such as home loans, LAP, etc. to the repo rate. The repo linked lending rate impacts the loan rates and makes loans affordable for the general public since a decrease in repo rate reduces the loan rates. Thus, monetary policy transmission brings in transparency and affordability.


What is the time of the RBI Monetary Policy?

The Reserve Bank of India reviews the monetary policy every two or three months. On May 04, 2022, the central bank released its bi-monthly monetary policy statement for the year 2022-23.The RBI Monetary Policy Committee kept policy rates unchanged.

What is the current monetary policy?

As per the current monetary policy announced on May 04, 2022, the repo rate stands at 4.00% and the reverse repo rate at 3.35%. The marginal standing facility (MSF) rate and the Bank Rate stand at 4.25%. Further the CRR rate and SLR rate stand at 4.50% and 18.00%.

What are the current rates of RBI?

The current rates as per RBI Monetary Policy are: SLR rate is 18.00%, Repo rate is 4.40%, Reverse Repo rate is 3.35%, MSF rate is 4.25%, CRR rate is 4.50% and Bank rate is 4.25%.

What is CRR and SLR?

CRR and SLR are quantitative tools under monetary policy tools that are the reserve ratios.Cash reserve ratio or CRR, as stipulated by RBI, is the minimum ratio of total deposits received by the bank that has to be kept in the form of cash.
At the end of each business day, every bank is required to maintain a portion of their Net Demand and Time Liabilities in the form of liquid assets like cash or gold. The ratio between these maintained liquid assets and liabilities is the SLR. The MPC RBI regulates the CRR rate and SLR rate just like the RBI Monetary Policy Repo Rate.

Can I take a loan from the RBI?

RBI is the regulating authority of all Banks. Just like people borrow funds from Banks, similarly, Banks borrow funds from the RBI. The interest rate at which the banks borrow funds from RBI is called the repo rate. The Reserve Bank of India made it compulsory for banks to lend loans at the repo linked lending rate by setting it as an external benchmark. Banks now offer repo rate linked home loan interest rates.

How many times does the RBI announce the monetary policy in a year?

The Reserve Bank of India announces the monetary policy at least 4 times a year. Monetary policy refers to the actions undertaken by the RBI to control the money supply and achieve sustainable economic growth.

What is Marginal Standing Facility Rate?

Marginal Standing Facility rate is the rate at which the RBI offers money to the scheduled commercial banks that are facing a shortage of liquidity. This rate differs from the Repo rate and the banks can get overnight funds from the Reserve Bank of India by paying the MSF rate. The current MSF rate as per the RBI Policy is 4.25%.

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