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05/12/2018 03:27pm

RBI keeps repo rate under LAF unchanged at 6.5%

image RBI keeps repo rate under LAF unchanged at 6.5%

New Delhi, Dec 5 (KNN) On the basis of an assessment of the current and evolving macroeconomic situation, Reserve bank of India (RBI) has maintained status quo by keeping the repo rate unchanged as per market expectations.

In the fifth bi-monthly monetary policy statement, the Monetary Policy Committee (MPC) decided to keep the policy repo rate under the liquidity adjustment facility (LAF) unchanged at 6.5 per cent.

Consequently, the reverse repo rate under the LAF remains at 6.25 per cent, and the marginal standing facility (MSF) rate and the Bank Rate at 6.75 per cent.

The decision of the MPC is consistent with the stance of calibrated tightening of monetary policy in consonance with the objective of achieving the medium-term target for consumer price index (CPI) inflation of 4 per cent within a band of +/- 2 per cent, while supporting growth.

Repo rate refers to the rate at which commercial banks borrow money from the RBI in case of shortage of funds. It is basically used by RBI to keep inflation under control.

While, reverse repo rate is the rate at which RBI borrows money from commercial bank. It is a monetary policy instrument which can be used to control the money supply in the country.

Liquidity Adjustment Facility (LAF) is the primary instrument of Reserve Bank of India for modulating liquidity and transmitting interest rate signals. It refers to the difference between the two key rates viz. repo rate and reverse repo rate.

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