RBI Governor Mr.Raghuram Rajan announced the Monetory policy of RBi for the second quarter of the year on Friday. In this his announcement made against the expectation from several kind of people. In this Rajan has increased 0.25bps in Repo rates. The first announcement of RBI Governor made an great turning point in stock market. To control the cash flow in India the the important policy changes has been slashed by RBI. Cash credit policy for the banks remains the same. Borrowing money on Debentures for Emergency period the amount received from RBI as standing marginal facility is being decreased from 10.25% to 9.5%.
Cash Reserve Policy
The amount being collected from public as Deposits some amount need to be invested in RBI and in turn RBI paying 4% as interest rates this is called as Reserve Ratio. In this collected deposit 99% needed to invest in RBI but now it has been decreased to 95% to banks. Banks are being borrowed every time this is called as Repo rate and now it is 7.25% interest need to pay but after the policy announcement on Friday 20/09/2013 it has been increased to 7.50% which 0.25%bps has been increased due to this banks interest expense, personal, vehicle, home loans and corporate loans to firms and business to be increased from now due to this.
Reverse Repo Rate policy
Banks will deposit the extra money which they have in RBI for short term this is called as Reserve Repo Rate. Between Reserve rate and Reserve Repo rate there should be an difference of 1% as per RBI policy, so the repo rate has been increased an 0.25% which hikes from 6.25% to 6.50% if this is more or less equal to the public and private sectors lending, bank will show interest to deposit in RBI directly so the difference is maintained. So the risk factor is very less to bank when depositing the money in RBI.
When Money Inflation is high changing the repo rates by RBI is a usual thing. Inflation is happening due to two factors, one is supply vs demand when demand is more and supply is less, then Inflation may rise. Another one reason is Excess money flow in public leads and thinks to buy unnecessary things apart from their needs.
Due to price hike in Food and Oil August month Inflation has raised to 6.1% which is the highest in last six months and also the Retail Price Index also increased to 9.52% which is all due to Inflation. Rains are good all over India in this year 2013 the Agricultural production is expected to be double this year which touches 4.5% and also Wholesale Price Index should be always under the control of banks. So due to get into control Mr.Raghuram Rajan has changed the important Interest rates in last Monetory Policy change. Next Monetory policy change is expected in next month October 29,2013.