RBI for one policy rate to tame inflation

RBI for one policy rate to tame inflation

At present, there are three rates — repo, reverse repo and bank rate — through which RBI injects or absorbs liquidity from the system.

The proposal is aimed at aligning the Indian monetary system with international best practices. The repo rate should be the single policy rate to unambiguously signal the stance of monetary policy to achieve macroeconomic objectives of growth with price stability.

Under the proposed system, reverse repo and bank rate would adjust automatically with change in the repo rate, which would be announced by the RBI with a view to tame inflation and promote growth. All rates will operate within a corridor of 150 basis points, said the working group which was headed by RBI Executive Director Deepak Mohanty.While the bank rate would be 50 basis points above the single policy rate (repo rate), reverse repo rate would be 100 basis points below it, the report said.

The panel further said that bank rate, which has remained dormant since April 2003, should be re-activitated as a monetary management instrument.