As widely anticipated, India's central bank has maintained a status quo for the second time in a row, given the elevated inflation. The newly constituted Monetary Policy Committee (MPC) has decided to keep the repo rate unchanged at 4 per cent while maintaining the accommodative stance. With this, the repo rate continues to remain at a two-decade low. The Reserve Bank of India last revised its policy rate on May 22.
Meanwhile, RBI's decision broadly mirrors the stance adopted by a number of central banks in advanced economies (AE), while it diverges considerably from those of emerging market economies (EMEs) that continued to cut rates through Q2 and Q3 of 2020.
Here are a few instances. The central bank of Mexico cut its policy rate by 50 bps each during three months-ended June quarter of 2020 and effected 50 bps cut in August and another 25-bps cut in September. Bank Indonesia cut its policy rate by 25 bps each in June and July and has maintained a pause since August. Amongst other major EME central banks, the Bank of Thailand and Bangko Sentral ng Pilipinas cut their rates in Q2CY20 while Bank Negara Malaysia and the Central Bank of Sri Lanka reduced rates in both Q2 and Q3, highlighted the Monetary policy report.
Further, the central bank of Brazil reduced the Selic rate, or its federal funds rate by 75 bps each in May and June, following it up with a 25 bps cut in August as inflation remained below the target. Though, it took a pause in its September meeting, after nine consecutive rate cuts since August 2019. The Bank of Russia cut its policy rate by 50 bps, 100 bps and 25 bps in April, June and July, respectively before pausing in September. The South African Reserve Bank cut its policy rate by 175 bps between April & July, as overall risks to inflation outlook remained balanced and took a pause in September. The central bank of Turkey cut its policy rate by 100 bps in April and 50 bps in May and maintained a pause thereafter. In September, however, the central bank increased its policy rate by 200 bps to restore the disinflation process and support price stability, the report added.
The key policy rates are at their lowest level in most countries and central banks of most developed nations have used up the limited policy space available to them in March. The US Fed has maintained a pause on the target range of the policy rate in all Federal Open Market Committee meetings since the emergency rate cut in mid-March. The European Central Bank and Bank of Japan have also not changed key rates in response to the pandemic. The Bank of England too has maintained a pause on the bank rate, which is at its all-time low of 0.1 per cent since March 2020. The Bank of Canada has maintained a pause on the policy rate at 0.25 per cent since March. The Reserve Bank of New Zealand maintained its policy rate at its historic low of 0.25 per cent in each of its meetings since April. However, the central banks of South Korea and Norway were the only two AE central banks to effect a rate cut beyond Q1 of 2020-- both reduced their policy rate by 25 bps each in May.