News: The RBI on Thursday decided to keep the benchmark repo rate unchanged at 4% and reiterated its ‘accommodative’ policy stance in a bid to ensure the economy’s recovery from the COVID-19 pandemic becomes durable and broad-based. The improving outlook for inflation gave it room to focus on growth, the RBI added.
About Repo Rate:
Repo rate is the rate at which the central bank of a country (Reserve Bank of India in case of India) lends money to commercial banks in the event of any shortfall of funds.
Repo rate is used by monetary authorities to control inflation.
In the event of inflation, central banks increase repo rate as this acts as a disincentive for banks to borrow from the central bank.
This ultimately reduces the money supply in the economy and thus helps in arresting inflation.
The central bank takes the contrary position in the event of a fall in inflationary pressures.
Repo and reverse repo rates form a part of the liquidity adjustment facility.
It is the interest rate at which the central bank of a country lends money to commercial banks. The central bank in India i.e. the Reserve Bank of India (RBI) uses repo rate to regulate liquidity in the economy.
In banking, repo rate is related to ‘repurchase option’ or ‘repurchase agreement’.When there is a shortage of funds, commercial banks borrow money from the central bank which is repaid according to the repo rate applicable. The central bank provides these short terms loans against securities such as treasury bills or government bonds. This monetary policy is used by the central bank to control inflation or increase the liquidity of banks.
The government increases the repo rate when they need to control prices and restrict borrowings. On the other hand, the repo rate is decreased when there is a need to infuse more money into the market and support economic growth.
An increase in repo rate means commercial banks have to pay more interest for the money lent to them and therefore, a change in repo rate eventually affects public borrowings such as home loan, EMIs, etc. From interest charged by commercial banks on loans to the returns from deposits, various financial and investment instruments are indirectly dependent on the repo rate.
Reverse Repo Rate:
This is the rate the central bank of a country pays its commercial banks to park their excess funds in the central bank. Reverse repo rate is also a monetary policy used by the central bank (which is RBI in India) to regulate the flow of money in the market.
When in need, the central bank of a country borrows money from commercial banks and pays them interest as per the reverse repo rate applicable. At a given point in time, the reverse repo rate provided by RBI is generally lower than the repo rate.
While repo rate is used to regulate liquidity in the economy, reverse repo rate is used to control cash flow in the market.
When there is inflation in the economy, RBI increases the reverse repo rate to encourage commercial banks to make deposits in the central bank and earn returns. This in turn absorbs excessive funds from the market and reduces the money available for the public to borrow
2. RADIO FREQUENCY IDENTIFCATION (RFID)
News: The Army has commenced Radio Frequency Identification (RFID) tagging of its ammunition inventory, which it said would lead to increased efficiency in technical activities carried out in ammunition depots and reduce inventory carrying costs.
About Radio Frequency Identification:
Radio-frequency identification (RFID) uses electromagnetic fields to automatically identify and track tags attached to objects. An RFID system consists of a tiny radio transponder, a radio receiver and transmitter.
When triggered by an electromagnetic interrogation pulse from a nearby RFID reader device, the tag transmits digital data, usually an identifying inventory number, back to the reader. This number can be used to track inventory goods.
Passive tags are powered by energy from the RFID reader’s interrogating radio waves.
Active tags are powered by a battery and thus can be read at a greater range from the RFID reader, up to hundreds of meters.
Unlike a barcode, the tag does not need to be within the line of sight of the reader, so it may be embedded in the tracked object. RFID is one method of automatic identification and data capture (AIDC).
Since RFID tags can be attached to physical money, clothing, and possessions, or implanted in animals and people, the possibility of reading personally-linked information without consent has raised serious privacy concerns.