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#UPSCAspirants! This is an indispensable list of the most important
#EconomyTerms #RBIInitiatives #BankingRegulation #FinancialInclusion #DigitalPayments #ExternalSector #SustainableFinance for the
#UPSC Civil Services
#Preliminary 2024
#GeneralStudies Paper! 💯🎯✨
1. Inflation Targeting Framework 🎯
#MonetaryPolicyFramework
- RBI's flexible inflation targeting framework aims to keep inflation within the target band of 2-6%. (Source: RBI Annual Report 2022-23, 25/05/2023)
- The framework was adopted in 2016 to maintain price stability and promote economic growth. 💰📈
- Inflation targeting helps anchor inflationary expectations and ensures transparency in monetary policy decision-making. 🔮📊
2. Repo Rate 📈
#KeyPolicyRate
- The repo rate, the key policy rate at which RBI lends to banks, was increased from 5.15% to 6.5% between April 2023 and April 2024 to control inflation. (Source: RBI Monetary Policy Statement, 06/04/2024)
- Repo rate hikes aim to curb inflationary pressures by making borrowing costlier. 💸🔐
- Changes in the repo rate impact lending and deposit rates, affecting overall economic activity. ⚖️💹
3. Liquidity Adjustment Facility (LAF) 💰
#LiquidityManagement
- LAF is RBI's tool to manage liquidity in the banking system through repo and reverse repo operations. (Source: RBI Annual Report 2022-23, 25/05/2023)
- It helps maintain adequate liquidity in the system and ensure smooth functioning of financial markets. 💦🏦
- LAF operations enable RBI to absorb or inject liquidity, depending on market conditions. ⚖️💰
4. Prompt Corrective Action (PCA) Framework 🛡️
#BankingRegulation
- PCA framework is a supervisory tool used by RBI to monitor and discipline banks in case of deteriorating financial health. (Source: RBI Notification, 01/02/2024)
- It aims to restore the financial health of distressed banks through various operational and lending restrictions. 💊🏥
- PCA framework helps prevent the failure of banks and protect depositors' interests. 🔒💼
5. Marginal Standing Facility (MSF) 💸
#LiquidityManagement
- MSF is a window for banks to borrow overnight funds from RBI against approved securities at a higher rate than the repo rate. (Source: RBI Annual Report 2022-23, 25/05/2023)
- It provides a safety valve for banks to meet short-term liquidity needs. ⚠️💳
- MSF serves as a backstop for managing systemic liquidity shocks and preserving financial stability. 🛡️💰