Monetary Management

Economic Affairs Money Supply and Monetary Policy

Published on: 14-May-17
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Monetary Management

The Government amended the Reserve Bank of India Act, 1934 to provide for inflation targeting once in every Five years and provide for a statutory constitution of an empowered Monetary Policy Committee (MPC). As per the revised monetary policy framework, the Government has fixed the inflation target of 4 per cent with tolerance level of +/- 2 per cent for the period from 2016 to 2021.
Measures to strengthen corporate bond The RBI has taken a number of measures to strengthen the corporate bond market in India.

It accepted many of the recommendations of the Khan Committee to boost investor participation and market liquidity in the corporate bond market, major ones are:

Commercial banks are permitted to issue rupee-denominated bonds overseas (masala bonds) for their capital requirements and for financing infrastructure and affordable housing
Brokers registered with the Securities and Exchange Board of India (SEBI) and authorized as market makers in corporate bond market permitted to undertake repo reverse repo contracts in corporate debt securities. This move will make corporate bonds fungible and thus boost turnover in the secondary market
Banks are allowed to increase the partial credit enhancement they provide for corporate bonds to 50 per cent from 20 per cent. This move will help lower-rated corporates to access the bond market
Permitting primary dealers to act as market makers for government bonds, to give further boost to government securities by making them more accessible to retail investors.

By: Vishal

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