The Reserve Bank of India has kept the repo rate and reverse repo rate steady at 4% and 3.35% in October 2021. The Monetary Policy Committee (MPC) maintains an accommodative stance.
The meeting lasted for three days, between October 6 and 8, 2021. Shaktikanta Das, the RBI Governor, headed the panel. The other members of the MPC are Shashanka Bhide, Ashima Goyal, Jayanth R. Varma, Mridul K. Saggar and Michael Debabrata Patra.
MPC is a six-member panel that assesses the condition of macroeconomic situations. On the final day of the MPC meeting, the MPC decides upon various factors for the economy and issues for the public.
An accommodative stance means that there is room for lowering interest rates in the future to revive growth and demand in the economy.
The MPC also decided to continue with the accommodative stance as long as necessary to revive and sustain growth on a durable basis and continue to mitigate the impact of COVID-19 on the economy. This has to be done to ensure that inflation remains within RBI’s 4% target band in the medium term.
Inflation is being monitored by the RBI. While the demand may improve way into the future, the overhanging pandemic situation may dampen any signs of improvement. Currently, output in the country is even below its pre-corona levels. Inflation, again, will be driven from the supply side, signaling cost-push inflation rather than a demand-pull one.
Hence the MPC has decided to keep the repo rate unchanged and continue with an accommodative stance to revive and sustain durable growth and to nullify the impact of COVID-19.
Such measures and the rates have also been decided to keep in mind the inflationary pressures.
|Reverse Repo Rate||3.35%|
|Marginal Standing Facility||4.25%|
MPC maintaining the repo rates at 4% means that the rate at which banks borrow money from the central bank remains as is. Generally, when RBI lowers the repo rate, commercial banks are supposed to lower the interest rates they offer on loans given to you.
Interest rates are decided in consonance with the inflation in the economy.
Repo rate is the rate at which banks borrow money from the RBI.
The reverse repo rate is the rate at which the RBI borrows money from banks.
Marginal Standing Facility
MSF is the rate at which banks borrow overnight funds from the RBI. This window has been created for the banks if there is an emergency when inter-bank liquidity dries up and overnight interest rates are volatile. The rate is higher than the repo rate.
Bank rate is the rate at which RBI lends money to commercial banks without any security.
While the headline CPI (consumer price index) inflation continues to be influenced by rising prices of goods including edible oils, petrol and diesel, LPG, a sharp deflation in gold prices and muted housing inflation have helped to contain inflationary pressures.
Going ahead, the food inflation is expected to remain muted due to the likely record production of Kharif crops. Therefore, RBI has projected inflation for the year 2021-22 to be at 5.1%.
Improvement in economic activity and an increase in vaccinated individuals have aided in the revival of demand. The upcoming festive season should also augur well for the economic prospects. However, elevated input costs, volatility in global financial and commodity markets along with Covid-19 resurgence could impact the revival in the economy.
Taking all these factors into consideration, RBI has retained the growth projects of real GDP at 9.5% for FY22. Where 7.9% in 2QFY22, 6.8% in 3QFY22 and for the last quarter the growth is at 6.1%. RBI has also been projected.