The Reserve Bank of India left the repo rate unchanged at 4% in its monetary policy committee meeting. The MPC maintains an accommodative stance. This was the first MPC meeting of the financial year 2021-22.
The repo rate has remained at 4% since the August 2020 MPC meeting.
Mr Shaktikanta Das, governor of RBI, said in his address that “The MPC also decided to continue with the accommodative stance as long as necessary to sustain growth on a durable basis and continue to mitigate the impact of COVID-19 on the economy while ensuring that inflation remains within the target going forward.”
The RBI aims to maintain the inflation rate between 2 to 6%.
The reverse repo rate also stands unchanged at 3.35%.
The members of the MPC voted unanimously in favour of the decision.
The marginal standing facility (MSF) rate and the Bank Rate are at 4.25%.
The RBI is maintaining the accommodative stance since February 2019 MPC meeting.
The meeting lasted for three days between April 5 and 7. The panel was headed by Mr Shaktikanta Das with other members of the panel: Dr. Shashanka Bhide, Dr. Ashima Goyal, Prof. Jayanth R. Varma, Dr. Mridul K. Saggar and Dr. Michael Debabrata Patra.
What is Monetary Policy Committee(MPC)?
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.
In this article
What is meant by accommodative stance?
An accommodative stance means that there is room for lowering of interest rates in the future to revive growth and demand in the economy.
The MPC has decided to continue with this stance till we are able to tackle the impact of the global pandemic on our domestic economy.
The economy still recovering from the covid-19 impact with rising cases and the second wave of the virus that commenced in March 2021. Inflation continues to be inching higher as well.
Inflation, measured by consumer price index (CPI), rose to 5.03% in February as food inflation rose to 3.87% and fuel and light inflation rose to 3.53%.
Inflation had fallen to a 16-month low to 4.06%, in January.
Therefore RBI decided to remain status quo on the rates and await inflationary pressures to ease before it takes any action to fuel growth. RBI requires more headroom to deal with policy measures. Hence, the accommodative stance.
|Reverse Repo Rate||3.35%|
|Marginal Standing Facility||4.25%|
What does this mean for you?
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.
Terms to Know
Repo rate is the rate at which banks borrow money from the RBI.
Reverse Repo Rate
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 in case there is an emergency situation 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.
MPC’s Outlook on Growth and Inflation
The inflation rate is likely to face both downside and upside pressures. This means that there are factors in the economy currently which can raise or drop inflation rates. The bumper foodgrains production in the previous financial year should aid in keeping food prices in control.
Fuel prices may remain high till the government announces any cut in excise duties. The impact of high international commodity prices and increased costs of logistics services can be seen in the manufacturing and services belt.
Taking these points in consideration, the RBI expects inflation to come in at 5% for the January to March 2021 quarter and 5.2% during the April to June quarter.
Growth and Demand
The RBI is of the opinion that rural and urban demand has been gaining ground. Record agricultural production and revival of economic activity has helped to keep demand afloat.
The government’s stimulus to spur capital expenditure and the production-linked incentive (PLI) schemes for different sectors should incentivise investment demand and exports.
Due to the recent second wave, consumer confidence may have dipped.
Real GDP is expected to come in at 10.5% for the financial year 2021-22.
IMF has projected India to grow faster than all other countries at 12.5% in 2021.