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. RBI has sought comments from the stakeholders till March-end on the proposal
Mumbai: A Reserve Bank of India working group on Tuesday suggested that the short-term lending rate (repo) be made the single policy rate to signal the monetary policy stance, to effectively deal with inflation without hurting growth, reports PTI.
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. RBI has invited comments from the stakeholders till March-end on the proposal.
"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," the RBI working group said.
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 the 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), the 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-activated as a monetary management instrument.
"The bank rate be activated as a discount rate with a spread over the repo rate. Once the policy rate changes, the bank rate should change automatically with a fixed spread over the repo rate," it added.
The bank rate is the rate at which banks can borrow long-term funds from the RBI to overcome liquidity shortage.
Banks, however, have been borrowing mainly from repo window, which is a short-term instrument.
Currently, the repo rate is 6.5%, reverse repo (short-term borrowing) rate 5.5% and bank rate 6%. Although the RBI has raised key policy rates seven times since March 2010 to tame inflation, it has kept the bank rate unchanged since April 2003.
The methodology for RBI's internal liquidity forecast should be strengthened, the report said.
It added that the information on government cash balances should be put in public domain with minimum time lag for better liquidity assessment by market participants.
The report further said, "Collateral pool for reverse repo operation under the Liquidity Adjustment Facility (LAF) could be extended to include oil bonds."
RBI holds special bonds including oil bonds, apart from government securities, in its portfolio. Oil bonds are treated as non-SLR securities.
With effect from 27 July 2010, government securities obtained under reverse repo are not reckoned for the purpose of SLR of banks.
Therefore, the collateral pool for reverse repo operation under the LAF could be extended to oil bonds issued by the government to oil marketing companies and held by the central bank or any other security as notified by the RBI from time to time, the report said.
It also said LAF, with some modifications, should be the key element in the operating framework of the RBI.
The empirical exercise carried out by the group found that the interest rate channel of monetary transmission has the strongest impact on the money market in the existing LAF framework.
"The modified LAF should operate in a deficit liquidity mode and the liquidity level should be contained around (+)/(-) one per cent of net demand and time liabilities (NDTL) of banks for optimal monetary transmission," it said.
To make transmission of the monetary action swift, the report also suggested that the minimum level of reserves to be maintained on any day by banks with the RBI during a fortnight should be raised from 70% at present to 80% of the required cash reserve ratio (CRR).
CRR is the percentage of total deposits which banks have to keep with the RBI. This is a direct tool to manage liquidity in the system.
RBI had constituted the working group to review the framework of the operating procedure of monetary policy in India in the First Quarter Review of Monetary Policy for 2010-11 in July 2010.
Tata Consultancy Services has launched iON the first-of-its-kind fully integrated information technology solution for small and medium business in Andhra Pradesh
Tata Consultancy Services (TCS), an IT services, consulting and business solutions firm, has launched iON-the first-of-its-kind fully integrated information technology solution for small and medium business (SMB) in Andhra Pradesh.
iON provides on-demand business solutions using the very latest in scalable cloud computing technology. It has been developed to deliver IT in the 3rd generation service model to SMBs. Using a pay-per-use business model, iON helps SMBs leverage world-class technology solutions as a key business differentiator. It removes the need for SMBs to invest in IT assets or retain scarce IT talent.
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"iON will enhance India's global competitiveness by giving 35 million Indian SMBs access to world-class, simple-to-use and scalable technology tools. SMBs can use the power of iON to build their business advantage and compete on the global stage," said N Chandrasekaran, chief executive officer and managing director, Tata Consultancy Services, and chief architect, iON.
iON has already garnered over 150 SMB customers. These SMB customers are experiencing the benefits of increased efficiencies; faster go to market, predictability of technology, talent on call and an expanded customer base as a result of iON's end-to-end integrated suite of cloud-based business solutions.
To provide SMB customers with seamless service, iON has created an eco-system of 90 cloud service partners across India.
Another fire has broken out in Japan, and radiation levels have risen at the earthquake-crippled Fukushima nuclear plant. The crisis may be slipping out of control. Brent for April fell $1.17 to $107.35 a barrel, its lowest intraday price since 23rd February, and was down $1.11 by 11:35pm ET. Prices had touched $120 on 24th February as violence escalated in Libya, disrupting oil output. On Tuesday, prices slumped 4.5% on Tuesday, the biggest drop in more than a year.