ROLE OF RBI IN WORLD ECONOMY:

Gandham Lavanya

 The central bank issues and regulates currency notes. It keeps reserves with a view to securing monetary stability and is called banker to banks. It regulates and supervises banks and other financial institutions. The RBI plays a vital role in economic growth of the country and maintaining price stability.

Monetary policy of the country: The RBI has been tasked to have a modern monetary policy framework to meet the challenges of an increasingly complex economy and to maintain price stability while keeping in mind the objective of growth.

Inflation control: The RBI has targeted to keep the mid-term inflation at 4 four per cent (+/- 2 per cent).

RBI decides interest rate: A six-member Monetary Policy Committee, headed by RBI Governor, decides the benchmark repo rate through voting that acts as a guide for banks to set interest rates for lending and deposit. In case of a tie, the Governor has the casting vote. Earlier, the RBI Governor used to decide the interest rate in consultation with Technical Advisory Committee (TAC) consisting of RBI officials and external experts.

RBI announces interest rate for every two months: The MPC meets every two months for 2-3 days and the decision of the committee on monetary policy is announced at the end of the meeting on the RBI’s website. It has been a practice that the RBI Governor along with deputy governors holds a press conference after the MPC meeting.

RBI autonomy: – The RBI enjoys functional autonomy. However, the RBI Act empowers the government to issue directions to the governor in public interest (Section 7 of the Act).

Governments Banker: – RBI acts as a banker for both the central as well as state governments. It sells and purchase government securities on their behalf. It also manages liquidity in the system.

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