Published on Mon, Feb 13, 2012 at 22:25 | Source : CNBC-TV18
Updated at Tue, Feb 14, 2012 at 20:41
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RBI revises bank rate to 9.5%
The bank rate, which has been defunct for nearly a decade, has been revised by the RBI to 9.5% from the 6% earlier. The RBI says, this is a purely technical move and has no monetary policy implications at all, reports CNBC-TV18’s Latha Venkatesh.
The bank rate, which has been defunct for nearly a decade, has been revised by the RBI to 9.5% from the 6% earlier. The RBI says, this is a purely technical move and has no monetary policy implications at all, reports CNBC-TV18's Latha Venkatesh.
In the RBI Act, it is meant to be the rate at which the Reserve Bank can discount commercial paper. But the Reserve Bank has hardly ever rediscounted commercial paper. Therefore, various governors in the past have tried to use it as a refinance rate or some export incentive rate.
Lately, it was used as a penal rate that is if banks felt short on maintaining CRR, they were punished at bank rate plus something. But it makes sense to link it to the repo rate or the marginal standing facility rate, which is higher than the repo rate by 1% point. It makes sense to connect the penal rate to that rate. Therefore, the bank rate has been raised to the current MSF rate, which is 9.5%.
It is just a technical adjustment, interesting only for RBI historians.
