In line with market expectations, Reserve Bank of India (RBI) Governor Shaktikanta Das-led Monetary Policy Committee (MPC) has maintained status quo in its latest policy announcement on Thursday, in wake of rising inflation. The MPC, which began its three-day meeting on February 4, kept the repo rate, the rate at which the central bank lends money to commercial banks, under the liquidity adjustment facility (LAF) unchanged at 5.15 per cent, for the second consecutive time this fiscal. Consequently, the reverse repo rate under the LAF will remain unchanged at 4.90 per cent, and the marginal standing facility (MSF) rate at 5.40 per cent. The bank rate remained unchanged at 5.40 per cent.
The RBI Governor Shaktikanta Das kept the cash reserve ratio (CRR) of scheduled banks unchanged at 4 per cent of net demand and time liability (NDTL)."On the basis of an assessment of the current and evolving macroeconomic situation, the MPC at its meeting today decided to continue with the 'accommodative stance' as long as it is necessary to revive growth, while ensuring that inflation remains within the target," RBI said in a policy statement.
These decisions 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.
Most economists were expecting the central bank to hold rates due to recent spike in inflation. Retail inflation, measured by year-on-year changes in the CPI, surged from 4.6 per cent in October to 5.5 per cent in November and further to 7.4 per cent in December 2019, the highest reading since July 2014. While food group inflation rose to double digits, the fuel group moved out of deflation. Inflation in CPI excluding food and fuel continued to edge up from its October trough.
At its December meeting, the RBI had maintained a status quo, leaving the key repo rate-- the rate at which it lends to banks -- at 5.15 per cent amid rising concerns over inflation. The halt came after five consecutive cuts totalling to 135 basis points in 2019.
In the fifth bi-monthly resolution of December 2019, the RBI had revised the CPI inflation projection for the second half of 2019-20 to 5.1-4.7 per cent from 3.5-3.7 per cent forecast at its October meeting. The actual inflation outcome for Q2 at 5.8 per cent overshot projections by 70 bps, primarily due to the intensification of the onion price shock in December 2019 on account of unseasonal rains in October-November.
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