RBI Policy: Repo rate unchanged at 4%, to maintain accommodative stance

Reserve bank of India

MUMBAI: The Reserve Bank of India on Thursday kept the repo rate, the key interest rate at which it lends to commercial banks, unchanged at 4%, according to a statement by the central bank governor Shaktikanta Das on Thursday. The central bank’s six-member Monetary Policy Committee (MPC) was unanimous in its decision to stand pat on interest rates.

The committee concluded its three-day policy monetary review meeting today.

The reverse repo rate, the rate at which Reserve Bank of India (RBI) buys securities from the same banks, was also kept unchanged at 3.35% and so was the bank rate at 4.25%.

This was the last time the current six-member MPC met after a four-year tenure. The MPC will in a month have four new faces.

The consumer price inflation (CPI) softened to 6.1% in June from 7.2% in April, as lockdown lifted and supplies improved. The MPC aims to keep the retail inflation at 4% within a band of +/- 2% in the medium-term through its policy rate changes.

The MPC had at its last 22 May policy meet refrained from giving a guidance on inflation, saying the outlook on prices was uncertain. While inflation is expected to spike in July due to localized lockdowns and fresh supply disruptions, it is expected to ease in the second half.

A Mint survey had showed that six of 10 bankers polled expect RBI to keep policy repo rate on hold at 4%, while the rest expected a 25 bps cut. This is contrary to a Bloomberg poll of 44 economists which showed that the street remained divided with 22 economists expecting a 25 bps cut, one projecting a 50 bps move and the rest saw no change. Economists are expecting inflation to fall to 4.5% in the second half of the fiscal year.

While policy transmission has been visible, the banking system is yet to see a pick-up in credit growth. With the 115 bps reduction in repo beginning February, banks have already transmitted 72 bps to the customers on fresh loans, the fastest so far in a banking system where policy rate transmission is usually slow. Large banks have transmitted as much as 85 basis points.
News Source:- livemint

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