In a major reform measure, the Reserve Bank of India on Tuesday announced measures to move to a regime, where the repo rate will serve as the single policy rate.
By making repo as the single policy rate, it will ensure that the banking system will always operate in a cash-deficit mode, force banks to focus on deposit mobilisation to improve liquidity, give better returns to customers and make monitoring of transmission of monetary measures for easier.
"There will, henceforth, be only one independently varying policy rate and that will be the repo rate. The transition to a single independently varying policy rate is expected to more accurately signal the monetary policy stance," RBI governor D Subbarao said.
The reverse repo rate will continue to be operative but it will be pegged at a fixed 1 percentage point below the repo rate and, thus, will no longer be an independent rate.
Banks will be able to borrow from RBI through a newly instituted marginal standing facility (MSF) to bridge overnight liquidity gaps at 1 percentage point above the repo rate
{{/usCountry}}Banks will be able to borrow from RBI through a newly instituted marginal standing facility (MSF) to bridge overnight liquidity gaps at 1 percentage point above the repo rate
{{/usCountry}}The European Central Bank has a similar rate structure.