Repo to be reference rate for monetary policy: RBI
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In line with international practice, the RBI today decided to anchor monetary policy through a single short term lending rate known as repo rate.
Unlike in the past, the rate at which the RBI borrows from banks (reverse-repo) will be the benchmarked 100 basis points below the repo rates.
According to the new policy format, the central bank has introduced an additional facility-Marginal Standing Facility (MSF)--for banks to borrow from it.
Under it, banks would be permitted to borrow short term funds from RBI up to one per cent of their deposits at 8.25 per cent, with effect from May 7.
"This transition to a single independently varying policy rate is expected to more accurately signal the monetary policy stance," RBI Governor D Subbarao said in the 'Monetary Policy Statement for 2011-12'.
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CA. Sachin Data
03-May-2011 , 11:20:16 pmThough an earnest attempt made by the RBI to bring the current practices parallel to the international practices, the interest rate @8.25% is really penal in nature.