Reserve Bank of India and Monetary Policy

The Reserve Bank of India (RBI) is the nation's Central Bank since 1935. The basic functions of RBI is

• To regulate issue of bank notes.
• Monetary stability
• Operating currency and credit system. 

Role of RBI:

• Monetary authority.
• Issuer of currency.
• Banker to banks.
• Regulator of the banking system.
• Manager of foreign exchange reserves.
• Regulator and supervisor of the payment and settlement systems.
• Developmental role.

RBI Central Board of Directors:

•  Official Directors:
• 1 Governor
• 4 Deputy Governor

• Non- Official Directors:
• 4 Directors-- representing each local board.
• 10 Directors-- experts in various sectors of the economy.
• 1 representative of the central government.

Monetary Policy:  is use of instruments under the control of central bank to regulate the availability, cost and use of money and credit to achieve specific economic objectives, such as low and stable inflation and promoting growth.

There are several direct and indirect instruments used in formulation and implementation of monetary policy.

Direct Instruments:

• Cash Reserve Ratio (CRR):
• is maintaining cash balance with RBI by banks.
• Varies between 3% - 15%
• Current CRR - 6%
• Statutory Liquidity Ratio ( SLR):
• is maintaining safe and liquid assets by banks such as government securities, gold and cash.
• Current SLR - 24%

Indirect Instruments:

• Repo Rate:
• is RBI lends money to commercial banks.
• Current repo rate - 6.50%
• Reverse Repo Rate:
• is RBI borrow excess funds from commercial banks.
• Current reverse repo rate - 5.50%

The Reserve Bank of India announces monetary policy review quarterly ( April, July, October and January). The day before the policy review  is to be announced, a detailed report on  Review of Macroeconomic and Monetary Developments is released on RBI website.