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Why the RBI kept repo rates unchanged


The Monetary Policy Committee (MPC) of the Reserve Bank of India kept key policy rates unchanged for the ninth time in a row and 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, while ensuring that inflation remains within the target going forward”.


GS-III: Indian Economy (Growth and Development of Indian Economy, Monetary Policy, Inflation)

Dimensions of the Article:

  1. What are the current policy rates?
  2. What does status quo mean?
  3. What is the MPC assessment on growth and inflation?
  4. Back to Basics: What is the MPC?
  5. Membership of the MPC
  6. Objectives of the MPC

What are the current policy rates?

  • The bank has kept the repo rate — the rate at which the RBI lends funds to banks — unchanged at four per cent and the reverse repo rate — the rate at which RBI borrows from banks — at 3.35 per cent.
  • The bank rate — the rate at which RBI lends short-term funds to banks sans security — also remains unchanged at 4.25 per cent.
  • The six-member panel voted 5-1 to retain the accommodative policy.

What does status quo mean?

  • The unchanged repo rates will help maintain the status quo on the prevailing low interest rate regime for some more time.
  • This works well for borrowers as the environment of affordability will continue.
  • As a result of the looming threat of Omicron and the uncertainty that it has set in motion, tightening of the policy and rate hike will now be postponed to the next calendar year- 2022.

What is the MPC assessment on growth and inflation?

  • The MPC has retained the growth target at 9.5 per cent for FY2022. India’s economy expanded 8.4 per cent in the September quarter from a year earlier.
  • The RBI also retained retail or consumer price inflation projection at 5.3 per cent in 2021-22.

What does the RBI Governor say?

  • “Overall, the recovery that had been interrupted by the second wave of the pandemic is regaining traction, but it is not yet strong enough to be self-sustaining and durable.
  • This underscores the vital importance of continued policy support. Downside risks to the outlook have risen with the emergence of Omicron and renewed surges of COVID-19 infections in a number of countries,” says RBI Governor Shaktikanta Das.

Back to Basics: What is the MPC?

The Monetary Policy Committee (MPC) is the body of the RBI, headed by the Governor, responsible for taking the important monetary policy decisions about setting the repo rate. Repo rate is ‘the policy instrument’ in monetary policy that helps to realize the set inflation target by the RBI (at present 4%).

Membership of the MPC

  • The Monetary Policy Committee (MPC) is formed under the RBI with six members.
  • Three of the members are from the RBI while the other three members are appointed by the government.
  • Members from the RBI are the Governor who is the chairman of the MPC, a Deputy Governor and one officer of the RBI.
  • The government members are appointed by the Centre on the recommendations of a search-cum-selection committee which is to be headed by the Cabinet Secretary.

Objectives of the MPC

  • Monetary Policy was implemented with an initiative to provide reasonable price stability, high employment, and a faster economic growth rate. The major four objectives of the Monetary Policy are mentioned below:
    • To stabilize the business cycle.
    • To provide reasonable price stability.
    • To provide faster economic growth.
    • Exchange Rate Stability.
  • Average inflation overshooting the upper tolerance level or remaining below the lower tolerance level for any three consecutive quarters constitutes a failure to achieve the inflation target.
  • In such an event, the Reserve Bank of India (RBI) is required to send a report to the Centre, stating the reasons for the failure to achieve the inflation target, the remedial actions it proposes to initiate, and an estimate of the time-period within which it expects to achieve the inflation target through the corrective steps proposed.

-Source: Indian Express

December 2023