What’s in Today’s article?

• RBI’s Economic Capital Framework Latest News
• Understanding the Economic Capital Framework (ECF)
• RBI’s Current Review of the ECF
• Impact of the ECF Review on RBI’s Surplus Transfers
• Importance of ECF Review 
• Conclusion
• Economic Capital Framework FAQs

RBI’s Economic Capital Framework Latest News

• An internal committee of the Reserve Bank of India (RBI) is reviewing the entire economic capital framework (ECF) of the central bank.

Understanding the Economic Capital Framework (ECF)

• The Economic Capital Framework (ECF) is a policy that determines how the Reserve Bank of India (RBI) manages its financial reserves, risk provisioning, and surplus transfers to the central government. 
• It sets guidelines for the contingency risk buffer (CRB)—a financial reserve maintained by the RBI to address unforeseen economic crises.
• The Bimal Jalan Committee, formed in 2018, recommended that the CRB should be maintained between 5.5% to 6.5% of the RBI’s balance sheet. This buffer acts as a safeguard for economic stability, ensuring that the RBI can function effectively as the Lender of Last Resort (LoLR) during financial crises.
• Since 2019, the RBI has followed these recommendations, and any revisions to the framework could influence how much surplus the RBI transfers to the government in future years.

RBI’s Current Review of the ECF

• RBI Governor’s Statement on ECF Review
  • On Friday, RBI Governor Sanjay Malhotra confirmed that the central bank is reviewing the Economic Capital Framework. 
  • This periodic review, recommended by the Bimal Jalan Committee, is meant to assess whether any adjustments are needed in the CRB range.
  • Malhotra clarified that while the current CRB stands at 6.5% (as of March 31, 2024), the review could lead to an increase or decrease in the required buffer, though no immediate changes have been confirmed.
• Background on the Bimal Jalan Committee Recommendations
  • The Bimal Jalan-led panel had suggested a five-year review cycle for the ECF, with its recommendations valid from June 2019 to June 2024. Given this timeline, the RBI has now begun an internal assessment to evaluate whether changes are necessary.
  • According to RBI Deputy Governor M. Rajeshwar Rao, the review will help determine if the current framework remains effective or if modifications are required to address evolving financial conditions.

Impact of the ECF Review on RBI’s Surplus Transfers

• Record Surplus Transfer to the Government in 2023-24
  • For the financial year 2023-24, the RBI approved a record surplus transfer of ₹2.11 lakh crore to the central government. 
  • This amount significantly boosts government revenue and helps finance fiscal policies, including infrastructure projects and social welfare programs.
• How CRB Adjustments Could Affect Future Dividends
  • Economists believe that any revision in the CRB threshold could directly impact future surplus transfers. 
  • If the CRB requirement is increased, the RBI may need to set aside more reserves, reducing the amount of surplus available for government transfers. 
  • Conversely, if the CRB is lowered, it could free up more funds for dividend payments.
  • However, Governor Malhotra stated that the decision to revise the CRB is not linked to current global uncertainties, and any change will be based purely on economic factors rather than short-term concerns.

Importance of ECF Review 

• Ensuring Economic Stability
  • The contingency risk buffer serves as an essential financial safeguard against global financial instability, banking crises, and currency fluctuations.
  • Maintaining an adequate buffer ensures that the RBI can respond effectively to any economic downturn.
• Impact on Government Budget Planning
  • The RBI’s surplus transfers play a crucial role in supporting government spending and fiscal deficit management.
  • Any change in the ECF could influence the government’s budgetary planning for the upcoming fiscal years.
• Balancing Risk and Development Needs
  • The RBI must strike a balance between maintaining financial stability and providing surplus funds to the government.
  • If the CRB is increased, it could strengthen the financial resilience of the central bank but may reduce funds available for government initiatives.

Conclusion

• The RBI’s review of the Economic Capital Framework is a crucial exercise that could determine the future allocation of financial reserves and surplus distribution. 
• While the current contingency risk buffer (CRB) stands at 6.5%, the review will assess whether adjustments are needed to maintain economic resilience.
• A higher CRB could enhance financial security but reduce the RBI’s surplus transfers to the government, while a lower CRB could provide the government with more fiscal resources but may increase financial risks.
• As the five-year review process unfolds, all eyes will be on the RBI’s decision, which will have long-term implications for India’s economic and fiscal stability.

Economic Capital Framework FAQs

Q1. What is the Economic Capital Framework (ECF)?

Ans. The ECF is a policy that guides how the RBI manages financial reserves, risk provisioning, and surplus transfers to the government.

Q2. What is the contingency risk buffer (CRB) and why is it important?

Ans. The CRB is a financial reserve maintained by the RBI to handle economic crises and ensure financial stability.

Q3. What was the Bimal Jalan Committee’s recommendation on CRB?

Ans. The committee suggested maintaining the CRB between 5.5% to 6.5% of the RBI’s balance sheet for financial resilience.

Q4. How does the ECF review impact RBI’s surplus transfers to the government?

Ans. Any change in the CRB could increase or reduce the amount of surplus the RBI transfers to the government.

Q5. Why is the RBI reviewing the Economic Capital Framework now?

Ans. The review is part of a five-year periodic assessment recommended by the Bimal Jalan Committee, covering 2019-2024.

Source: BS | IE

What’s in Today’s article?

• RBI’s Monetary Policy Latest News
• RBI’s Monetary Policy: Key Highlights of the RBI’s MPC Decisions
• RBI’s Monetary Policy: Digital Security Initiative
• RBI’s Monetary Policy: Key Takeaways from the RBI’s MPC Decisions
• RBI’s Monetary Policy: Market Reactions of the RBI’s MPC Decisions
• RBI’s Monetary Policy: Future Monetary Policy Projection
• Conclusion
• RBI’s Monetary Policy FAQs

RBI’s Monetary Policy Latest News

• The Reserve Bank of India’s (RBI) Monetary Policy Committee (MPC) has lowered the repo rate by 25 basis points (bps) to 6.25% - the first rate cut in 57 months. 
• This move is aimed at supporting economic growth amid easing inflation projections.

RBI’s Monetary Policy: Key Highlights of the RBI’s MPC Decisions

• Repo rate cut: The repo rate is the interest rate at which a central bank lends money to commercial banks. The term "repo" stands for "repurchase option". The RBI reduced the repo rate from 6.5% to 6.25%.
• Inflation outlook: Inflation is expected to ease to 4.4% this quarter and further moderate to 4.2% in 2025-26.
• Impact on loans: The reduction in the repo rate could lead to cheaper loans for homes, cars, and other purposes.
• First rate cut since 2020: The last rate cut occurred in May 2020 when the repo rate was reduced to 4% during the COVID-19 crisis.

RBI’s Monetary Policy: Digital Security Initiative

• Exclusive internet domain for banks: The RBI has announced the launch of the ‘bank.in’ domain for Indian banks to enhance trust in digital transactions.
• Objective: To reduce cybersecurity threats, prevent phishing, and streamline secure financial services.
• Implementation:
  • The Institute for Development and Research in Banking Technology (IDRBT) will act as the exclusive registrar.
  • Actual registrations will begin in April 2025.
  • Detailed guidelines for banks will be issued separately.
• Future expansion: Plans to introduce ‘fin.in’ for non-bank financial entities in the future.

RBI’s Monetary Policy: Key Takeaways from the RBI’s MPC Decisions

• Monetary policy stance:
  • Neutral approach: Despite the rate cut, the MPC has maintained a neutral monetary stance.
  • Global uncertainties: Risks from geopolitical tensions, trade protectionism, and financial market volatility remain key concerns.
  • Inflation targeting: The RBI remains committed to ensuring inflation aligns with its target while supporting economic growth.
• Economic growth projections:
  • Real GDP growth forecast:
    • 6.4% for the current financial year (2024-25). 6.7% for 2025-26.
    • Real gross domestic product (GDP) is an inflation-adjusted measure that reflects the value of all goods and services produced by an economy in a given year.
  • Factors supporting growth:
    • Improving employment conditions.
    • Income tax relief from the 2025-26 Union Budget.
    • Stable agricultural output with the assumption of a normal monsoon.
• Rural vs. urban demand:
  • Rural demand: On an upward trend, showing resilience.
  • Urban consumption: Subdued, with mixed signals from high-frequency indicators.
• Currency and external sector:
  • Rupee volatility:
    • The Indian rupee has depreciated by 3.2% against the US dollar since November 6, 2024, in line with global trends.
    • The RBI is focused on maintaining stability in the currency market without targeting a specific exchange rate.
  • Foreign exchange reserves:
    • Stand at $630.6 billion as of January 31, 2025, covering over 10 months of imports.
    • The RBI has been using foreign exchange reserves to prevent excessive volatility while allowing a gradual depreciation.
  • Current account deficit: Expected to remain within sustainable levels, ensuring external sector resilience.
• Liquidity management:
  • Liquidity crunch in December-January: Attributed to advance tax payments, capital outflows, forex operations, and increased currency circulation.
  • Rise in currency in circulation: Increased by ₹1.80 lakh crore (5.3%) to ₹35.99 lakh crore as of January 2025.
  • Banks urged to lend in Call Money Market:
    • The call money market is a short-term financial market where banks and other institutions borrow and lend funds to each other. It's also known as the "notice money" market. 
    • RBI Governor Sanjay Malhotra advised banks to actively participate in the uncollateralized call money market instead of parking funds with the RBI.
  • Measures to address liquidity: The RBI has assured proactive interventions to ensure orderly liquidity conditions.

RBI’s Monetary Policy: Market Reactions of the RBI’s MPC Decisions

• Stock markets: The Sensex fell by 198 points (0.25%) to 77,860.19, while the NSE Nifty declined by 43 points (0.18%) to 23,559.95.
• Banking sector performance: The BSE Bankex fell by 0.49%.
• Bond markets: The 10-year bond yield increased slightly to 6.70%.
• Rupee movement: The rupee appreciated by 15 paise to 87.43 against the US dollar.

RBI’s Monetary Policy: Future Monetary Policy Projection

• Less restrictive policy on the anvil?: Malhotra hinted that the MPC might shift its stance from neutral if inflation-growth dynamics turn favorable.
• Expected rate cuts: There are expectations of two more rate cuts in 2025 if inflation moves as projected.
• Aspirational growth target: The RBI Governor expressed a desire for 7% GDP growth.

Conclusion

• The RBI’s rate cut signals a shift in monetary policy to stimulate economic growth while maintaining inflation control. 
• With a neutral stance, the central bank is balancing inflationary concerns and global uncertainties while ensuring stability in India’s financial markets. 
• The introduction of the ‘bank.in’ domain is a crucial step toward securing India’s digital financial ecosystem. 
• The market remains cautious, awaiting further policy signals from the RBI.

RBI’s Monetary Policy FAQs

Q1. What is the significance of the recent RBI repo rate cut, and how does it impact the Indian economy?

Ans. The RBI cut the repo rate by 25 basis points to 6.25% for the first time in 57 months to stimulate economic growth by making borrowing cheaper. 

Q2. How does the RBI manage liquidity in the economy?

Ans. The RBI manages liquidity through open market operations, repo rate adjustments, and forex interventions.

Q3. Discuss the role of foreign exchange reserves in maintaining financial stability.

Ans. Foreign exchange reserves act as a buffer against external shocks and help stabilize the rupee. 

Q4. What is the purpose of introducing the ‘bank.in’ domain?

Ans. The ‘bank.in’ domain aims to enhance cybersecurity, reduce phishing attacks, and ensure safe digital transactions. 

Q5. What are the RBI’s growth and inflation projections for the Indian economy?

Ans. The RBI projects real GDP growth of 6.7% for 2025-26, assuming a normal monsoon and stable agricultural output. 

Source: TH | IE | TH

What’s in Today’s article?

• International Criminal Court Latest News
• Background
• Reasons Behind Donald Trump Imposing Sanctions on the ICC
• Significance of the Sanctions
• Criticism of Trump’s Decision
• Political and Diplomatic Implications
• Trump’s Sanctions Against the ICC FAQs

International Criminal Court Latest News

• U.S. President Donald Trump signed an executive order imposing sanctions on the International Criminal Court over investigations of Israel, a close U.S. ally.

Background

• U.S. President Donald Trump signed an executive order on February 6, 2025, imposing sanctions on the International Criminal Court (ICC).
• The move comes in response to the ICC’s issuance of an arrest warrant against Israeli Prime Minister Benjamin Netanyahu for alleged war crimes committed in Gaza following the Hamas attack in October 2023.
• Neither the United States nor Israel recognizes the ICC’s jurisdiction, leading Trump to denounce the court's actions as “illegitimate and baseless”.
• This order marks another significant step in the U.S. stance against the ICC’s interventions in American and allied affairs.

Reasons Behind Donald Trump Imposing Sanctions on the ICC

• ICC’s Arrest Warrant for Israeli Leaders
  • The ICC issued an arrest warrant for Israeli Prime Minister Benjamin Netanyahu and former Defense Minister Yoav Gallant, holding them accountable for Israel’s military actions in Gaza after the 2023 Hamas attack.
  • The conflict resulted in tens of thousands of Palestinian casualties, including children, drawing widespread international condemnation.
• U.S. and Israel’s Non-Recognition of ICC
  • Neither Israel nor the U.S. is a member of the ICC, as both governments reject the court’s authority over their national security matters.
  • Trump’s executive order argues that the ICC is setting a dangerous precedent by prosecuting leaders of non-member states.
• Trump’s Defense of U.S. Allies
  • The executive order states that the ICC’s actions are a direct attack on a close U.S. ally, and that targeting Netanyahu is unacceptable.
  • The U.S. government has long been wary of an international tribunal holding American and allied officials accountable for military operations.

Significance of the Sanctions

• Trump's executive order threatens “tangible and significant consequences” for ICC officials involved in the investigation against Israel. These include:
  • Freezing Assets and Property – ICC officials and their associates could have their U.S. assets frozen.
  • Travel Bans – ICC prosecutors and their family members may be denied entry into the U.S.
  • Restrictions on Collaborators – Individuals and organizations that assist the ICC’s investigations could face legal consequences under U.S. laws.
• This is not the first time the U.S. has sanctioned ICC officials. In 2020, Trump imposed similar measures against then-Chief Prosecutor Fatou Bensouda for investigating alleged U.S. war crimes in Afghanistan. 
• However, these sanctions were later lifted under President Joe Biden.

Criticism of Trump’s Decision

• Human Rights Organizations Condemn the Move
  • Human Rights Watch and the American Civil Liberties Union (ACLU) have denounced the sanctions, calling them an attack on international justice.
  • As per the ACLU, the sanctions would discourage victims of human rights abuses from seeking justice through the ICC.
• Concerns Over Free Speech and Accountability
  • Critics argue that the executive order violates First Amendment rights, as U.S. citizens who assist the ICC could face penalties.
• Impact on U.S. Global Influence
• The move raises concerns about the U.S. appearing to shield its allies from accountability while advocating for international justice elsewhere.
• In 2023, the U.S. supported ICC charges against Russian President Vladimir Putin for war crimes in Ukraine, showing inconsistency in its stance toward the court.

Political and Diplomatic Implications

• Trump’s sanctions on the ICC could have long-term geopolitical consequences:
  • Strengthening U.S.-Israel Relations – The move is likely to deepen U.S.-Israel ties, as Trump presents himself as a defender of Israel against international scrutiny.
  • Straining U.S. Relations with Europe – Many European nations support the ICC’s role in prosecuting war crimes, and this decision could create friction between the U.S. and its European allies.
  • Future of U.S. Foreign Policy – Trump’s aggressive stance against international institutions like the ICC could reshape U.S. foreign policy in future global conflicts.

Trump’s Sanctions Against the ICC FAQs

Q1. Why did Trump impose sanctions on the International Criminal Court (ICC)?

Ans. Trump sanctioned the ICC after it issued an arrest warrant for Israeli Prime Minister Benjamin Netanyahu over alleged war crimes in Gaza.

Q2. What actions do the sanctions include against ICC officials?

Ans. The sanctions include freezing assets, travel bans, and legal restrictions on individuals assisting ICC investigations.

Q3. How has the international community reacted to Trump’s sanctions on the ICC?

Ans. Human rights organizations like Human Rights Watch and the ACLU have condemned the move, calling it an attack on justice.

Q4. What impact could these sanctions have on U.S. foreign relations?

Ans. The decision may strengthen the U.S.-Israel ties but could strain relations with European allies who support the ICC.

Q5. Has the U.S. sanctioned ICC officials before?

Ans. Yes, in 2020, Trump sanctioned then-Chief Prosecutor Fatou Bensouda for investigating alleged U.S. war crimes in Afghanistan.

Source: TH