Functions of RBI Monetary Banker to Policy Banks Foreign Currency Exchange Issue of Banker toRegulation Governmentf Banking system
Monetary Policy Monetary policy is the macroeconomic policy laid down by the central bank. It involves management of money supply and interest rate and is the demand side economic policy used by the government of a country to achieve macroeconomic objectives like inflation, consumption, growth and liquidity .The Reserve Bank of India (RBI) is vested with the responsibility of conducting monetary policy with the primary objective of maintaining price stability while keeping in mind the objective of growth. This responsibility is explicitly mandated under the Reserve Bank of India Act, as amended in 2016 and notified in the official Gazette on May 14, 2016.
Instruments of Monetary Policy . Repo Rate: Repo 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. Repo rate is used by monetary authorities to control inflation Reverse Repo Rate: It is the rate at which the central bank of a country borrows money from commercial banks within the country. It is a monetary policy instrument which can be used to instrument which can be used to control the money supply in the country.
Continued.. Marginal Standing Facility (MSF): It is a window for banks to borrow from the Reserve Bank of India in an emergency situation when inter-bank liquidity dries up completely. Bank Rate: It is the rate at which the Reserve Bank is ready to buy or rediscount bills of exchange or other commercial papers. This rate has been aligned to the MSF rate and, therefore, changes automatically as and when the MSF rate changes alongside policy repo rate changes
. Cash Reserve Ratio (CRR): It is a specified minimum fraction of the total deposits of customers, which commercial banks have to hold as reserves either in cash or as deposits with the central bank. CRR is set according to the guidelines of the central bank e Statutory Liquidity Ratio (SLR): It is the Indian government term for reserve requirement that the commercial banks in India require to maintain in the form of gold, government approved securities before providing credit to the customers. . Market Stabilisation Scheme (MSS): These securities are issued with the objective of providing the RBI with a stock of securities with which it can intervene in the market for managing liquidity. These are not issued to meet the government expenditure
CURRENT RATES 6.25% Repo Rate Reverse Repo Rate Marginal Standing Facility Rate 5.75% 6.75% Bank Rate 6.75% Cash Reserve Ratio 4% Statutory Liquidity Ratio 20.75%
Banker to Banks Banks are required to maintain a portion of their demand and time liabilities as cash reserves with the Reserve Bank. They also need to keep accounts with the Reserve Bank for settling inter bank obligations. In order to facilitate a smooth inter-bank transfer of funds, or to make payments and to receive funds on their behalf, banks need a common banker. By providing the facility of opening accounts for banks, the Reserve Banlk becomes this common banker, known as 'Banker to Banks' function The Reserve Bank also acts as the lender of the last resort'. It can come to the rescue of a bank that is solvent but faces temporary liquidity problems by supplying it with much needed liquidity when no one else is willing to extend credit to that bank
Issue Of Currency Like any other central bank, the RBI acts as a sole currency authority of the country. It issues notes of every denomination except one-rupee note and coins and small coins-through the Issue Department of the Bank. . One-rupee notes and coins and small coins are issued by the Government of India. In actuality, the RBI also issues these coins on behalf of the Government of India e It not only issues currency but also exchanges or destroys currency and coins not fit for circulation. The objective of currency issue is merely to give the public adequate quantities of currency notes and coins and that too of good quality.
Foreian Exchange . One of the essential central banking functions performed by the RBI is that of maintaining the external value of rupee. The RBI has the authority to enter into foreign exchange transactions both on its own account and on behalf of the Government. The official external reserve of the country consists of monetary gold and foreign assets of the Reserve Bank . The Reserve Bank, as the custodian of the country's foreign exchange reserves, is vested with the duty of managing the investment and utilization of the reserves in the most advantageous manner. Being a manager of foreign exchange, it manages the Foreign Exchange Management Act, (FEMA) 1999. As a manager of foreign exchange, the RBI helps in facilitating trade (external) and payment and aims at promoting orderly development and maintenance of the foreign exchange market in India.
RBl reference exchange rates Currency Rate (as on 21th november,2016) INR/ 1 USD INR 1 Euro INR 100 Jap. YEN INR/1 Pound Sterling : 68.07 : 72.34 : 61.47 : 85.14
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