8th February – Prelims Booster

Rates to fall despite RBI’s status quo

The Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) decided to keep the interest rates unchanged in the wake of a rise in inflation, but emphasised that there would be space for rate reduction.

Details –

The central bank took two measures that could ease lending rates further.

  1. One, it opened a window to extend ₹1 lakh crore to the commercial banks at the repo rate, which is 5.15%.
  2. Second, banks have been exempted from maintaining the cash reserve ratio — which is 4% of the net demand and time liabilities now — for home, auto and MSME loans that are extended from January 31 to July 31.

What is Monetary Policy Committee?

  • The idea of setting up an MPC was suggested by an RBI-appointed committee led by the then deputy governor Urjit Patel in February 2014. 
  • It is a six member panel which has the responsibility of maintaining inflation targets. The MPC sets interest rates to keep retail inflation within targets.
  • Inflation targets are set once every five years. The Committee meets four times a year and make public its decisions following each meeting. 
  • The committee has six members. Of the six members, the government nominates three. The RBI Governor chairs the committee. The Governor, however, does not enjoy a veto power to overrule the other panel members, but has a casting vote in case of a tie.
  • The other three members are from the RBI with the governor being the ex-officio chairperson. Deputy governor of RBI in charge of the monetary policy will be a member, as also an executive director of the central bank. Decisions will be taken by majority vote with each member having a vote.
  • The government nominees to the MPC are selected by a Search-cum-Selection Committee under Cabinet Secretary with RBI Governor and Economic Affairs Secretary and three experts in the field of economics or banking or finance or monetary policy as its members.
  • Members of the MPC are appointed for a period of four years and shall not be eligible for reappointment.

What is repo rate?

  • The rate of interest the RBI charges from its clients on their short-term borrowing is the repo rate in India.
  • This is an abbreviated form of the ‘rate of repurchase’ and in western economies it is known as the ‘rate of discount’.
  • In practice it is not called an interest rate but considered a discount on the dated government securities, which are deposited by institution to borrow for the short term. When they get their securities released from the RBI, the value of the securities is lost by the amount of the current repo rate.
  • Call Money Market of India (inter-bank market) operates at this rate and banks use this route for overnight borrowings.
  • This rate has direct relation with the interest rates banks charge on the loans they offer. The rate was 6 percent in March 2018.

Omar, Mehbooba detained under Public Safety Act

Jammu and Kashmir Administration has slapped the stringent Public Safety Act (PSA) against former Chief Ministers Mehbooba Mufti and Omar Abdullah.

Details –

By virtue of these PSA notices, the detention of these leaders is extended by three months and could be extended further first up to six months and then one year without trial.

What is ‘Public Safety Act’?

  • The law was introduced 1978. It was brought in to prevent timber smuggling, and keep the smugglers in prison.
  • This is a preventive detention law that allows the State government to detain a person up to two years without a trial.
  • It is similar to the National Security Act, but this was enacted two years before the NSA came into being.
  • Within four weeks of passing the detention order, the government has to refer the case to an Advisory Board. This Advisory Board will have to give its recommendations within eight weeks of the order. If the Board thinks that there is cause for preventive detention, the government can hold the person up to two years.
  • The person detained has limited rights. Usually when a person is arrested, they have the right to legal representation and can challenge the arrest. But, when a person is arrested under the PSA, they do not have these rights before the Advisory Board unless sufficient grounds can be established that the detention is illegal.
  • According to Section 13(2), the detaining authority need not even inform the detained individual as to the reason for the action, if it decides that it goes against public interest.

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