Monetary Policy: Tools

Quantitative/Gen./Indirect
Reserve Ratios (CRR, SLR)
OMO & MSS
Rates: Bank, MSF, LAF [Repo, RR]
+review of last one years policies

Qualitative: Selective, Direct

Selective Credit Control (SCC), PSL: Credit
Rationing, Subsidy [fiscal policy]
Consumer Credit control / EMI
Margin / LTV
Moral Suasion
But in the first Monetary policy of
Direct Action FY18, so many new updates..
 2017, April: first Bi-Monthly Monetary Policy?
7

6 Deflation,
6.25 Demand
5
Boost
4

Inflation
1

0
0
6TH 16 1ST 17 2ND 17 3RD 17 4TH 17 5TH 17 6TH 17
(FEB17) (APR) (JUN) (AUG) (OCT) (DEC) (FEB18)
Since Oct-2016: crude oil price 1st MP of FY18
10% due to OPEC Cuts
Post demonetization, vegetable Repo Hike
prices due to distress sale, but or
now after re-monetization Repo HOLD =
7TH PC: House rent allowance , or
Repo CUT
state govt also to offer similar.
Likelihood that rents will
 2017, April: first Bi-Monthly Monetary Policy?
7

6 Deflation,
6.25 6.25 Demand
InflationBoost
5

projection: likely to
4 increase but wait and watch till
IMD Monsoon forecast comes
3

Inflation
1

6TH 16 1ST 17 2ND 17 3RD 17 4TH 17 5TH 17 6TH 17

(FEB17) (APR) (JUN) (AUG) (OCT) (DEC) (FEB18)
 But now those CMB bills
are maturing
Again excess liquidity?
LAF Reverse Repo Rate: youve to increaseto attract bankers
Reverse Repo Rate 5.75%

100 crore

RBI to Repurchase
@105.75 Cr.
After 1|7|14 days
it is interest rate paid by RBI to its clients for short term loans. all
clients eligible. RR = R% -1% nahi 0.5%
Policy corridor:1%-> 0.5% (Apr. 2016)-> 0.25%(Apr.2017)
MSF (2011) Align with Repo (2000) Reverse Repo (2000)
call rate
..that too and
absorb MSS
matured
liquidity

Liquidity Adjustment Facility (LAF) window

+0.50% 6.25% -0.50%

+0.25% -0.25%
Youve decided to HOLD
repo, fearing inflation
How can you raise reverse
repo to attract bankers?
 Find Correct Statement(s)
A. Government bears the interest
on MSS bonds
B.RBI bears the interest on
Reverse Repo rate
Mock

C.Both A and B
D.Neither A nor B

1. Skip 2. Attempt 3. Mark n Review

 RBIs Window operations require G-Sec- buying, selling, collateral

OMO MSS04 LAF2000 MSF2011

G-Sec G-sec (upto 2 years) Repo: inject Liquidity Repo-SLR securities

T-Bills-upto 364 days T-bill-upto 364 days RR: Suck liquidity Inject liquidity

Buy: Inject liquidity CMB90 days

Fight Fight
Deflation Inflation
Sell: Suck liquidity Sell: Suck liquidity Inject Suck
Liquidity liquidity
 SDF
Inject Liquidity

Absorb Liquidity

Standing Deposit Facility (SDF) Without collateral

Urjit Patel Committee had
proposed. Without Limit
(MSS- 6L cr.)
Now RBI to explore
 Liquidity adjustment facility (LAF): Repo Rate: WEF 2000,

Repo Rate 6.25%

100 crore
client to Repurchase
@106.25 Cr.
Collateral: G-Sec
But not from SLR Overnight (1 day),
7 days, 14 days
MP1-FY18: Repo collaterals can be substituted.
All clients eligible
"Interest Event, "Tax Event", "Liquidity"
 Parties to a Tri-Party Repo-agreement (RBI will explore)
Corporate
Custodian

Lender Borrower
Develop, Deepening of Corporate
Bond market. (AIFI, LIC, GIC?)
Borrowing without disclosing
identity, collateral, credit rating.
HR Khan Committee. US-EU
already have it since 80s-90s
 Digital Payment systems: classification of
Immediate Payment Service
(IMPS)
Digital Payment System
Real time
Real Time Gross settlement
(RTGS)

National Electronic Fund

Transfer (NEFT)

National Electronic Clearing

Service (NECS)
Delayed Settlement
National Automated Clearing
House (NACH)

Cards system (Visa, MasterCard

and RuPay).
 NEFT: Hourly settlement but only in weekday (8AM-7PM)
A settlement system where a large
number of transactions are
accumulated and offset against each
other, with only the net difference
being transferred at the end of a given
settlement cycle.

Sending SBI Axis

customer#1 5 5
customer#2 5 3
Total (8AM-9AM) 10 8
NET (incoming) -2 2
MP1-FY18: NEFT settlement: before hourly, now half-hourly

If settlement every 30
minutes, how many
settlements will be
there from 8AM to
7PM?
A. 21
B. 22
C. 23
D. 24
Under Vision-2018 for digital payment
Banks: NDTL

NBFC: NOF
net owned Funds*
*NOF: Net owned funds: liability, capital etc (not IMP)

Net owned funds

Mutual funds

Venture Capital
funds (VCF)

ReITs MP1-FY18
upto 10%
permitted.
InVITs
What are these? Well see with
Finance lecture.
 2017, April: first Bi-Monthly Monetary Policy?
7

Repo collaterals substituted

Policy corridor 50-> 25 basis points.

6

6.25 6.25
5
NEFT window: 1hr-> 30 minutes.

4
Banks NOF in REITS and INVITS.

No need for CCCB as of now.

Will explore: Tri-Party Repo,

3

2 Wholesale Banks [in classification

1
lecture]
New guidelines for PPIs
0
No change in MDR until final
6TH 16 1ST 17 2ND 17 3RD 17 4TH 17 5TH 17 6TH 17
(FEB17) (APR) (JUN)
guidelines.
(AUG) (OCT) (DEC) (FEB18)
Centres for Financial Literacy (CFL)
with help of NGO, @Block level.