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Reserve Bank of India (RBI) Credit Policy, Deposit Rates Increases

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What RBI Do If asked to control Inflation ? They simply raise the Credit Policy rates. Even a simple MBA graduate knows this. This year Credit Policy of RBI has shown no difference and as expected Reserve Bank  raised its short term lending Repo rate by 50 basis points to 7.25% and reverse repo, the rate at which bank park funds with RBI, has been raised by 50 basis points to 6.25 per cent.

Reserve Bank of India has lowered the  economic growth projection to 8% for the current fiscal.

The most important and attractive change of Current Credit Policy of RBI is increase of Saving Bank Deposit Interest rate to 4% from current 3.5%.

A good move but it will cost more to bank since it will boost the cost of transaction.They have introduce a new borrowing policy for banks i.e. marginal standing facility (MSF).

According to ET :

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RBI has decided to open a new borrowing facility for banks under the marginal standing facility (MSF) to be effective May 7. The rate of interest on this facility will be 100 bps above the repo. The banks can borrow up to 1 percent of their net demand and time liabilities (NDTL) from this facility.

What do you think ? Do these policies check the Inflation in Real Sense.


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