Q.2 Write a short note on the new initiatives taken by the RBI in recent times aimed at streamlining the credit and monetary policy.

Ans. In the past two and half years, several new initiatives have been taken by the RBI aimed at strengthening the current regime of credit and monetary policy—major ones are as given below:

• now RBI announces the policy on bi-monthly basis.

• the glide path for disinflation policy adopted under which the CPI (C)

is used by the RBI as the ‘Headline Inflation’ for monetary management.

• a Monetary Policy Framework has been put in place—under it, the RBI is to ‘target inflation’ at 4 per cent with a variations of 2 per cent. It means, the ‘range of inflation’ is to be between 2 to 6 per cent (of the CPI-C).

• besides the existing repo route, term repos have been introduced for three set of tenures—7, 14 and 28 days.

• banks overnight access to liquidity is being progressively reduced and in place they are being encouraged to increase their dependency on the term repos. By March 2016, banks were allowed to borrow only up to 1 per cent of their NDTL from the Call Money Market—0.25 per cent through repo and the rest of 0.75 per cent through term repo. This aims to improve the transmission of policy impulses across the interest rate spectrum and providing stability to the loan market.

• As per the Union Budget 2016–17, individuals will also be allowed by the RBI to participate in the Government Security market (similar to the developed economies like the USA).

• the initiation of the MCLR (Marginal Cost of fund based Lending Rate) from the new financial year 2016–17. This is aimed at quickening the transition of the interest rate signaling from the RBI to the loan market.