Repo rate is the rate at which the Reserve Bank of India(Central Bank ) lends money to commercial banks in the event of any shortfall of funds. Repo rate is used by monetary authorities to control inflation.In the event of inflation, central banks increase repo rate as this acts as a disincentive for banks to borrow from the central bank. This ultimately reduces the money supply in the economy and thus helps in arresting inflation.A reduction in the repo rate will help banks to get money at a cheaper rate. When the repo rate increases, borrowing from the central bank becomes more expensive.Repo rate has become the key policy rate which signals the monetary policy stance of the economy.
Current Repo Rate is 6%
.Monetary policy is the process by which monetary authority of a country , generally central bank ( Reserve Bank Of India) controls the supply of money in the economy by its control over interest rates in order to maintain price stability and achieve high economic growth.
Certain instruments are used to control the money flow in the economy,as stated below :
Cash Reserve Ratio (CRR)
Repo Rate and Reverse Repo Rate
Statutory Liquidity Ratio (SLR)
The Monetary Policy Committee is entrusted with the task of fixing the benchmark policy rate (repo rate) required to contain inflation within the specified target level. As per the provisions of the RBI Act, out of the six Members of Monetary Policy Committee, three Members will be from the RBI and the other three Members of MPC will be appointed by the Central Government.
The RBI used to announce its monetary policy twice in a financial year. The financial year starts on April 1 and ends on March 31 the following year. After BimalJalan took charge as governor in 1997, he moved from two monetary policy reviews in a year to quarterly reviews. His successor Y V Reddy introduced a mid-quarter review, which resulted in an announcement every 45 days. A panel headed by RBI deputy governor Urjit Patel had recommended that the central bank monetary policy committee conduct a bi-monthly review. So while the RBI reviews its stance once in two months, it has the leeway to make changes to policy between the reviews if necessary.