RBI Monetary Policy Review: Repo Rate remains at 4%, reverse repo rate untouched at 3.35%

RBI Monetary Policy

Reserve Bank of India (RBI) Governor Shaktikanta Das has stated that the Monetary Policy Committee (MPC) has decided to make no changes in the key policy rates. The banking regulator has kept the repo rate unchanged at 4 percent and reverse repo rate at 3.35 per cent, commenting that the “need of the hour is to back growth.” The policy decision was announced at the end of the first meeting of the six-member Monetary Policy Committee (MPC) after Budget 2021.

Since March 2020, RBI had revised the key lending rate i.e. repo rate by 115 basis points in a bid to offer support to the economy facing the challenges of coronavirus crisis. The policy rate was last cut by RBI on May 22, 2020, in an off-policy cycle, when Covid-19 brought an unprecedented challenge to the economy. Since then, the central bank is maintaing the status quo on repo rates for repo rate.  The key interest rate at which the RBI lends money to commercial banks is at a 19-year low of 4 percent. The reverse repo rate which refers to the rate at which the RBI borrows from banks is at 3.35 percent.

Latest data shows that in December 2020 the Retail inflation fell sharply to 4.59 percent in December 2020. Retail inflation based on the Consumer Price Index (CPI) was 6.93 percent in November.

Also Read: RBI Monetary Policy Update: No change in Repo Rate, GDP for 2012 project at -7.5%

Post the outbreak of covid, India faced the worst contraction in the June quarter, and the GDP is projected to comedoent by a record 7.7 percent in the current fiscal ending March 31, 2021.

“The basis of the RBI policy remains accommodative, and it is reflected in the status quo with respect to the base rate – the repo rate is unchanged.  But there is a strand of rationalization of excess liquidity, as is evident from the phased hike in the CRR for its restoration to 4 percent , the pre-pandemic level,” says Dr. Joseph Thomas, Head of Research – Emkay Wealth Management.

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