MONETARY POLICY DEPARTMENT Flashcards
Under Section 45ZA, who determines the inflation target in terms of the Consumer Price Index (CPI)?
the Central Government, in consultation with the RBI
the Central Government retained the inflation target and the tolerance band for the next 5-year period? and what is the target and tolerance
April 01, 2021 to March 31, 2026 and Target is 4% with the upper tolerance limit of 6 per cent and the lower tolerance limit of 2 per cent
The Central Government has notified the following as the factors that constitute failure to achieve the inflation target: what are they
(a) the average inflation is more than the upper tolerance level of the inflation target for any three consecutive quarters; or (b) the average inflation is less than the lower tolerance level for any three consecutive quarters.
what if the Bank fails to meet the inflation target?
The Bank shall set out in a report to the Central Government that –
a. the reasons for failure to achieve the inflation target; b. remedial actions proposed to be taken by the Bank; and c. an estimate of the time-period within which the inflation target shall be achieved pursuant to timely implementation of proposed remedial actions.
The operating framework of monetary policy aims at aligning the operating target –…………………………………………………….– with the policy repo rate
the weighted average call rate (WACR)
What is the floor rate of LAF Corridor?
With introduction of SDF in April 2022, the SDF rate replaced the fixed reverse repo rate as the floor of the LAF corridor. And it is placed 25 bps below Policy rate
What is MSF?
The penal rate at which banks can borrow, on an overnight basis, from the Reserve Bank by dipping into their Statutory Liquidity Ratio (SLR) portfolio up to a predefined limit (2 per cent). This provides a safety valve against unanticipated liquidity shocks to the banking system. The MSF rate is placed at 25 basis points above the policy repo rate.
What is the main liquidity management tool?
A 14-day term repo/reverse repo auction operation at a variable rate conducted to coincide with the cash reserve ratio (CRR) maintenance cycle is the main liquidity management tool for managing frictional liquidity requirements.
Following the introduction of SDF, what will happen to the fixed rate reverse repo operations ?
It will be at the discretion of the RBI for purposes specified from time to time.
What is OMO?
These include outright purchase/sale of government securities by the Reserve Bank for injection/absorption of durable liquidity in the banking system
