RBI keeps repo rate on hold as food prices remain high.
FOR PRELIMS
Concern Over Food Prices:
- The Reserve Bank of India (RBI) is worried about the spike in food prices, despite overall inflation showing some moderation.
Policy Repo Rate Unchanged:
- The Monetary Policy Committee (MPC) of the RBI decided to keep the policy repo rate under the liquidity adjustment facility (LAF) unchanged at 6.50%. This is the seventh time the rates have been kept on hold.
MPC's Focus on Inflation:
- The MPC remains focused on aligning inflation to the target on a durable basis. They expressed satisfaction with the progress made under disinflation but acknowledged that the task is not yet finished.
Statement from RBI Governor:
- RBI Governor Shaktikanta Das emphasized the ongoing focus on managing inflation in a post-meeting press conference.
Consider the following statements: [2007]
1. The repo rate is the rate at which other banks borrow from the Reserve Bank of India.
2. A value of 1 for Gini Coefficient in a country implies that there is perfectly equal income for everyone in its population.
Which of the statements given above is/are correct?
(a) 1 only
(b) 2 only
(c) Both 1 and 2
(d) Neither 1 nor 2
EXPLANATION:-
Repo rate, or repurchase rate, is the rate at which the central bank of a country lends money to commercial banks in the event of any shortfall of funds. These loans are typically for a short duration.
If the repo rate is increased, borrowing from the central bank becomes more expensive for commercial banks. As a result, banks might increase the interest rates they charge their customers, which can slow down borrowing and spending, and help control inflation.
On the other hand, if the repo rate is decreased, it becomes cheaper for banks to borrow from the central bank. This can lead to banks reducing the interest rates they charge their customers, encouraging borrowing and spending, and stimulating economic growth.
The reverse repo rate is the rate at which the central bank of a country borrows money from commercial banks within the country. It's a monetary policy instrument which can be used to control the money supply in the country.
In a reverse repo transaction, banks purchase government securities from the central bank and agree to sell them back at a future date at a predetermined price. The difference between the purchase and resale price represents the interest earned by the bank, which is the reverse repo rate.
When the central bank wants to reduce the money supply in the economy, it increases the reverse repo rate. This makes it more attractive for banks to lend to the central bank, reducing the amount of money in circulation. Conversely, if the central bank wants to increase the money supply, it reduces the reverse repo rate, making it less attractive for banks to lend to the central bank and increasing the amount of money in circulation.
The Gini coefficient is a statistical measure used to represent income or distribution inequality within a nation or a social group. It was developed by the Italian statistician Corrado Gini in 1912.
The coefficient ranges from 0 to 1, where 0 represents perfect equality (everyone has the same income) and 1 represents perfect inequality (one person has all the income, and everyone else has none).
In reality, most countries have a Gini coefficient between 0.2 and 0.7. A higher Gini coefficient means greater inequality. Economists often use the Gini coefficient to understand the gap between the rich and the poor in a given society.