What are the reasons behind surplus liquidity in the system? To stimulate growth, various tools were used by RBI during pre-Covid and Post Covid phase to push excess liquidity into the system. These tools are: LTRO (long term repo operations) OMO (open market operations) TLTRO (targeted long-term repo operations) GSAP (government securities acquisition programme) RBI’s low repo rate A …
Context: The Indian government and the RBI are getting ready to launch a central bank digital currency (CBDC). Types of Central bank money: Physical cash Reserves maintained by commercial banks with the central bank. These reserves are in a digital form and are used by banks to manage interbank payments. Thus, a CBDC won’t change …
Why RBI wants its digital currency (CBDC)? – UPSC GS3 Read More »
Context: Inflation in many big countries. In India, WPI is in double digits while CPI is low. Inflation across world: Inflation across the world is due to the rebound from the pandemic induced slowdown. U.S: Some experts think that the current inflationary pressure is a short-term episode triggered by supply-chain disruptions. While others see it …
Divergence in WPI and CPI posing new challenges – UPSC GS3 Read More »
Context: India’s foreign exchange reserves have gone up by over $160 billion since the beginning of the last fiscal year and are currently at about $640 billion. Rise of Forex: (#diagram Chart) 1991 USD 5.8 billion 2001 USD 40 billion 2011 USD 300 bullion 2021 USD 640 billion Methods in which Forex can be used: …
What to do with high Foreign Exchange Reserves? – UPSC GS3 Read More »
Context: RBI announced Retail Direct Scheme which allows general public to invest in G-Secs. RBI is working on digital rupee (Digital Currency). Such steps are in direct competition with the role of banks thus reducing relevance of banks altogether. RBI’s Initiatives: Retail Direct Scheme: Under this scheme, people can invest directly in government bonds. As …
Status of Fiscal Deficit in FY22: According to the finance ministry data, government is likely to achieve 6.8 per cent fiscal deficit target for FY22. It is due to following factors: The aggregate borrowing of the states is 10 per cent less than their projections. The average cost of borrowing of the centre is within …
Problems for Indian economy: (Make a diagram) Low output; Increase in Public debt; High Inflation; Low demand; and Increased forex reserves. Status: India’s Forex has crossed $600 billion. Now India has 5th largest foreign exchange reserves in the world. India’s Gold reserves are largest. Reasons for rise in forex reserve: Decline in import bill: Due to weaker demand and …
Background: RBI has not intervened on high inflation since the onset of the pandemic in order to support growth. It has kept the repo rate unchanged at 4% for more than a year. But the current spell of inflation is over a high base and a continuation of recent trends will persuade it to turn …
Context: Rupee fell sharply by 105 paise. It is considered as one of the biggest single-session falls in 20 months. What are the reasons for rupee depreciation? A combination of factors are responsible for rupee depreciation, such as Concerns over Covid-19 has created uncertainty in the market. This affected the FDI(Foreign Direct Investment) and FII(Foreign Institutional Investment). …
Context: Budget 2022 has announced the introduction of India’s Central Bank Digital Currency (CBDC). Central Bank Digital Currency: Central bank digital currency (CBDC) refers to the virtual form of a fiat currency. . CBDC is no different from physical cash, except that it would exist in a digital form. CBDC would be issued and regulated by Reserve Bank …