Repo Rate Unchanged:
The six-member Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) kept key policy rates – Repo rate, Reverse repo rate and the Bank rate – unchanged and retained the accommodative policy stance.
- This is the tenth consecutive time that the repo rate has remained unchanged. The central bank had last revised the policy rate on 22nd May 2020.
- Global central banks, including the US Federal Reserve and the European Central Bank (ECB) have turned hawks and are also expected to hike rates soon.
- Monetary Policy Committee is a statutory and institutionalized framework under the Reserve Bank of India Act, 1934, for maintaining price stability, while keeping in mind the objective of growth.
- The Governor of RBI is ex-officio Chairman of the committee.
- The MPC determines the policy interest rate (repo rate) required to achieve the inflation target (4%).
- An RBI-appointed committee led by the then deputy governor Urjit Patel in 2014 recommended the establishment of the Monetary Policy Committee
Repo Rate:
- It has been retained at 4% to boost growth.
- This means banks won’t hike lending and deposit rates and EMIs on loans will remain unchanged.
- Repo rate is the rate at which the central bank of a country (RBI in case of India) lends money to commercial banks in the event of any shortfall of funds. Here, the central bank purchases the security.
Reverse Repo Rate:
- It has been retained at 3.35%.
- Reverse repo rate is the rate at which the RBI borrows money from commercial banks within the country.
Bank Rate:
- The Bank Rate unchanged at 4.25%.
- It is the rate charged by the RBI for lending funds to commercial banks.
Marginal Standing Facility (MSF) Rate:
- This rate has also been retained at 4.25%.
- MSF is a window for scheduled banks to borrow overnight from the RBI in an emergency situation when interbank liquidity dries up completely.
Inflation:
- The RBI has projected a 5.3% consumer price (retail) inflation for the current financial year 2021-22 (FY22) despite rising crude oil prices.
- The Consumer Price Index (CPI) monitors retail prices at a certain level for a particular commodity; price movement of goods and services at rural, urban and all-India levels.
- The change in the price index over a period of time is referred to as CPI-based inflation, or retail inflation.
- Retail inflation for the next fiscal (FY23) is projected at 4.5%, below the earlier projections.
- The MPC noted that inflation is likely to moderate in the first half of 2022-23 and move closer to the target rate, thereafter providing room to remain accommodative. Timely and apposite supply side measures from the government have substantially helped contain inflationary pressures.
- An accommodative stance means the MPC is willing to either lower rates or keep them unchanged.
Growth Forecast:
- The central bank has projected the real GDP growth at 7.8% for the next financial year (2022-23).
- Real GDP is a measurement of economic output that accounts for the effects of inflation or deflation.
- The difference between nominal GDP and real GDP is the adjustment for inflation. Since nominal GDP is calculated using current prices, it does not require any adjustments for inflation.
