RBI's Monetary Policy, BPS & Repo Rate

RBI's Monetary Policy Committee is responsible for fixing the interest rates in India. The meetings of Monetary Policy Committee are held at least 4 times a year (at least once Bi-Monthly). This committee has 6 member and the main objective of this body is to maintain the stability and boosting up the growth rate of the country's economy

6 member team of the Monetary committee as of today (08.10.2021) is

• Governor of the Reserve Bank of India - Shaktikanta Das

• Deputy Governor of the Bank in charge of Monetary Policy - Michael Debrata Patra

• Executive Director of the Bank in charge of Monetary Policy - M K Saggar

• Member of Prime Minister Narendra Modi's Economic Advisory Council - Ashima Goyal

• Senior Advisor at the National Council for Applied Economic Research - Shashanka Bhide

• Finance and Accounting Professor at the IIT, Ahmedabad - Jayanth Varma

Ashima Goyal, Shashanka Bhide and Jayanth Varma will hold office for the period of 4 years from the date of appointment, other three members are official. None of the central government nominees are eligible to be re-appointed

RBI (Reserve Bank of India) has announced the monetary policy decision today (08.10.2021). RBI's monetary policy committee voted 5:1 to maintain the repo rates. At present, Repo rate offered by RBI is 4.00% and the reverse repo rate offered is 3.35%. RBI retained the Gross Domestic Product (GDP) growth projection for the current fiscal at 9.5%. However it trimmed the CPI inflation projection to 5.3% from 5.7% for the fiscal year

Next Monetary policy committee meeting will be from 06th December 2021 to 08th December 2021

Basis Points (BPS) used to measure interest rates and other percentages in finance. Percentage changes and basis points can be summarized as 1% change = 100 basis points or 0.01% = 1 basis point. Basis point comes from the base move between two percentages or the spread between two interest rates. Because the changes recorded are usually narrow and the small changes can have outsized outcomes, the "basis" is a fraction of a percent

For example, if the Reserve Bank of India raises the target interest rate by 25 basis points, it means the rates haven risen by 0.25% percentage points. If the rates were at 2.50% and the RBI raised them by 0.25% or 25 Basis points, the new interest rate would be 2.75%. An analyst may state that a fund with 0.35% in expense is 10 basis point lower than another with an annual expense of 0.45%

Repo Rate is the rate at which Central Bank (Reserve Bank of India) grants loans to commercial banks like HDFC Bank, ICICI Bank, Kotak Bank and so on against government securities. Reverse repo rate is the interest offered by RBI to banks who deposit funds with them. At present, Repo rate offered by RBI is 4.00% and the reverse repo rate offered is 3.35%

By knowing the monetary policy committee details along with BPS and Repo rate, one can understand how the banking and banks stocks could perform in coming months. Let's say if the interest rate (repo rate) percentage was increased in todays RBI Monetary Policy Committee meeting, higher chance of banking stock could have gone down. Since these rates were unchanged and expecting for the corporate results announcement in coming weeks, we can expect the banking stocks to perform well

Have a Great Day

B G Nareshkumar