Money and Banking (part – II)

Bank Rate implies the rate of interest at which the RBI discount the Bills of Exchange. In other words, it is the rate of interest at which RBI provides loans to the commercial banks. It is an instrument of monetary policy to influence money supply in the economy.

Bank Rate implies the rate of interest at which the RBI discount the Bills of Exchange. In other words, it is the rate of interest at which RBI provides loans to the commercial banks. It is an instrument of monetary policy to influence money supply in the economy.

The difference between Repo Rate and Reverse Repo Rate was 1 percent in between June, 2010 to June, 2011. In 2011-12, the RBI changed the operating procedure of monetary policy and then only Repo Rate was determined and Reverse Repo Rate was automatically adjusted 1.00 percent below the Repo Rate. But, currently this expected difference of 1% is not effective. At present (as on 7 June, 2024), Policy Repo Rate is at 6.50% while Fixed Reverse Repo Rate is at 3.35%.

The policy Repo Rate and Reverse Repo Rate announced by Reserve Bank of India (RBI) in its Monetary policy on December 5, 2019 was 5.15% and 4.90% respectively. As on 7 June, 2024 Repo Rate is at 6.50% while Fixed Reverse Repo Rate is at 3.35%. Bank Rate and MSF Rate are both at 6.75%.

As per the question period option (b) was the correct answer. At present (as on 7 June, 2024) RBI's Policy Rates and Reserve Ratios are as follows :

Policy Repo Rate - 6.50%
Fixed Reverse Repo Rate - 3.35%
Standing Deposit Facility Rate - 6.25%
MSF Rate - 6.75%
Bank rate - 6.75%
CRR - 4.50%
SLR - 18.00%

In October 2001, Reserve Bank of India cut the Bank Rate by 0.5 percent. So Bank Rate had been reduced to 6.5% from 7% In February 2012, the Marginal Standing Facility (MSF) Rate was aligned to the Bank Rate. At present (as on 7 June, 2024), Bank Rate and MSF Rate both are at 6.75%.

As per the question period, the Bank Rate was at 7.75%. At present (as on 7 June, 2024) the Bank Rate is at 6.75%.

Hence, option (b) is the correct answer.

As per Section 8 (1) (a) of RBI Act, 1934, a Governor and (not more than 4) Deputy Governors are to be appointed by the Central Government. Hence, statement 1 is correct.

As per Section 7 (1) of RBI Act, the Central Government may from time to time give such direction to the RBI as it may, after consultation with the Governor of the RBI, consider necessary in the public interest. However, there is no such provision given in the Constitution of India. Hence, statement 2 is incorrect.

As per Section 7 (3) of RBI Act, the Governor and in his absence the Deputy Governor nominated by him in this behalf, shall also have powers of general superintendence and direction of the affairs and the business of the Bank, and may exercise all powers and do all acts and things which may be exercised or done by the Bank. Hence, statement 3 is correct.

Raja J. Chelliah hasn not been Governor of Reserve Bank of India (RBI). While the rest three have been the Governors of the RBI .

At present, shaktikanta Das is the Governor of the RBI . He was appointed on 12 December, 2018 as the Governor of the RBI.