SUBJECT: Business Environment

(MGMT103)
PSDA 2: Study the latest monetary policy. Analyse
its implications on achieving various macroeconomic
objectives

Submitted By: Guided By:

Aryan Chaudhary Dr Kushi Sharma

Enrolment No.: A3906421132

Section/Roll No.: A-39
Batch/Semester: 2021-2024/3
Latest Monetary Policy

The Reserve Bank of India announced renewed rate hikes in the August 2022

Monetary Policy committee review. The repo rate was hiked by 50 bps to 5.40
per cent. The RBI Governor Shaktikanta Das stated that inflation is a primary
concern, and stressed that in the near term will be observing a 4 per
cent inflation.
Shantikanta stressed that the rupee's performance was much better than other
emerging market economy currencies. Post the announcement, yields on 10-
year-old government bonds also increased.
Professor Jayanth Verma, the MOC member, disagreed with the committee’s
policy.
Shaktikanta Das has expressed that liquidity has substantially increased from
the market. The loan-demand growth and the current policy rate hike are raising
deposit rates. Thus, more banks are raising more funds for lending. The
governor announced that the FY23 GDP growth forecast has been retained at
7.2 per cent.

RBI Monetary Policy 2022: Key points

 Repo rate or key short-term lending rate increased by 50 basis points

(bps) to 5.4 per cent for the third consecutive time in 2022.
 140 bps hike in repo rate since May 2022 to control inflation.
 Real GDP growth forecast: Q1 at 16.2 per cent; Q2 at 6.2 per cent ; Q3 at
4.1 per cent and Q4 at 4 per cent.
 GDP growth forecast for 2022-23 retained at 7.2 per cent.
 Real GDP growth for Q1: 2023-24 projected at 6.7 per cent.
 Retail inflation forecast too retained at 6.7-per cent for 2022-23.
 Inflation forecast for: Q2 at 7.1 per cent; Q3 at 6.4 per cent, Q4 at 5.8 per
cent ; Q1:2023-24 at 5 per cent.
 Domestic economic activity to expand
 MPC decided to stay focused on withdrawal of accommodative stance to
observe inflation
 RBI will try maintaining the stability of the rupee
 Currently, the rupee is devalued by 4.7 per cent against the US dollar in
fiscal year 2022 till August 4.
  Devaluation and depreciation of rupee depends more on the US dollar's
growth than the inability of the Indian economy.
 India witnessed large portfolio outflow of USD 13.3 billion in FY23 up to
August 3.
 Foreign exchange reserves of India stays as the fourth largest
internationally
 A mechanism to be implemented to allow NRIs to utilise Bharat Bill
Payment system for payments of education and utility on behalf of their
families in the country.
 The forthcoming meeting of the rate-setting panel is scheduled for
September 28-30, 2022.

RBI Repo Rate Changes
Interest rate Rate (Percent)
Repo Rate 4.9
Bank Rate 5.15
Reverse Repo Rate 3.35
Marginal Standing Facility Rate 5.15

RBI Repo Rate History

Date Rate Change
5-Aug-22 5.4 0.5
8-Jun-22 4.9 0.5
May-22 4.4 0.4
9-Oct-20 4 0
6-Aug-20 4 0
22-May-20 4 0.4
27-Mar-20 4.4 0.75
Instruments of Monetary policy in various macro-economic
objectives
1. Open market operations: An open market operation is an instrument
which involves buying/selling of securities like government bond from or
to the public and banks. The RBI sells government securities to control
thye flow of credit and buys government securities to increase credit
flow.

2. Statutory Liquidity Ratio: All financial institutions have to maintain a

certain quantity of liquid assets with themselves at any point of time and
demand liabilities. This is known as statuatory liquidity ratio. The assets
are kept in non cash forms such as precious materials, bonds, etc. As of
December 2019, SLR stands at 18.25%.

3. Bank Rate Policy: Also known as the discount rate, bank rates are
interests charged by the RBI for providing funds and loans to the banking
system. An increase in bank rate increases the cost of borrowing by
commercial banks which results in the reduction in the credit volume and
hence the supply of money declines. An increase in the bank rate is the
symbol of the tightening of the RBI monetary policy.

4. Credit Ceiling: With this instrument, RBI issues prior information or

direction that loans to the commercial bank will be given upto a certain
limit. In this case, commercial banks will be tight in advancing loans to
the public. They will allocate loans to limited sectors. A few examples of
credit ceiling are agriculture sector advances and priority sector lending.