RBI MPC Meet: Repo rate unchanged at 4%; 'accommodative' stance maintained

The Reserve Bank of India's Monetary Policy Committee, in its policy announcement today, kept the key lending repo rate unchanged at 4 per cent. The MPC voted unanimously to keep the policy repo rate unchanged and reverse repo rate at 3.35 per cent. The Marginal Standing Facility (MSF) rate and the bank rate also remained unchanged at 4.25 per cent.

It also decided to continue with the accommodative stance of monetary policy "as long as necessary - at least through the current financial year and into the next year". The 'accommodative' stance reflects the RBI's commitment to revive growth on a durable basis and mitigate the impact of COVID-19 while ensuring inflation remains within the target. RBI Governor Shaktikanta Das said inflation is likely to remain elevated, with some relief in the winter months from prices of perishables and bumper kharif arrivals. "This constrains monetary policy at the current juncture from using the space available to act in support of growth," he said.

He said efforts are necessary to mitigate supply-side driven inflation pressures. "The MPC will monitor closely all threats to price stability to anchor broader macroeconomic and financial stability," he said. On COVID-19, he said 2020 has been extremely challenging as it tested and stretched our capabilities.

He said COVID-19 broke out even as the world was gripped by a synchronised slowdown in activity, which made the agony even more excruciating. "Alongside this human and economic tragedy, history will also record the unprecedented response by central banks and governments, healthcare systems and personnel, civil society organisations and above all, the common people," he said. He said the RBI's role as the debt manager and the banker to the government was tested to the hilt in 2020, marked by the highest ever level of market borrowing.

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"Our policies have resulted in the lowest weighted average cost of borrowing in 16 years and the highest weighted average maturity of the stock of public debt on record," he said. In his outlook, Das said the measures taken by the RBI over the year resulted in a significant moderation in the structure of interest rates across the spectrum, narrowing risks and a record issuance of corporate bonds. He said CPI inflation is projected at 6.8 per cent for Q3 of FY 21; 5.8 per cent for Q4; and 5.2 to 4.6 per cent in H1 of FY22.

The RBI governor said the RTGS system will soon be made 24x7. "It is proposed to reduce settlement and default risk in the system by facilitating settlement of AePS, IMPS, NETC, NFS, RuPay, UPI transactions on all days of the week," he said. The limits for contactless card transactions and e-mandates for recurring transactions through cards (and UPI) has been enhanced from Rs 2,000 to Rs 5,000 from January 1, 2021.

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