RBI keeps repo rate unchanged at 4%

December 04, 2020 - India

On the basis of an assessment of the current and evolving macroeconomic situation, the Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) at its meeting today decided to keep the policy repo rate under the liquidity adjustment facility (LAF) unchanged at 4.0 per cent. The reverse repo rate under LAF will remain unchanged at 3.35 per cent.

Consequently, the marginal standing facility (MSF) rate and the Bank Rate will remain unchanged at 4.25 per cent.

The MPC also decided to continue with the accommodative stance as long as necessary – at least during the current financial year and into the next financial year – to revive growth on a durable basis and mitigate the impact of COVID-19 on the economy, while ensuring that inflation remains within the target going forward.

The decisions of the MPC are in consonance with the objective of achieving the medium-term target for consumer price index (CPI) inflation of 4 per cent within a band of +/- 2 per cent, while supporting growth.

The MPC said it is of the view that inflation is likely to remain elevated, barring transient relief in the winter months from prices of perishables. "This constrains monetary policy at the current juncture from using the space available to act in support of growth. At the same time, the signs of recovery are far from being broad-based and are dependent on sustained policy support. A small window is available for proactive supply management strategies to break the inflation spiral being fuelled by supply chain disruptions, excessive margins and indirect taxes. Further efforts are necessary to mitigate supply-side driven inflation pressures," RBI said in its Monetary Policy Statement.

"It is heartening to see RBI confirming that it will maintain an accommodative stance till the time necessary for stabilising growth on a firm footing. While the inflation trajectory has moved up, at this point in time re-energising growth should get all the attention. There has been a substantial upgrade to the overall growth forecast for the second half of the current fiscal. This is encouraging but given the stress the economy had faced on account of COVID-19, we anticipate that policy support, both from the RBI and the government, will be required well into the next year," Dr Sangita Reddy, president, Federation of Indian Chambers of Commerce & Industry (FICCI) said.