RBI’s Monetary Policy Committee (MPC) announces no change in repo rate - (04 Dec 2020)

Banking

On the basis of an assessment of the current and evolving macro-economic situation, the Monetary Policy Committee (MPC) at its meeting decides to keep the policy repo rate under the liquidity adjustment facility (LAF) unchanged at 4.0 per cent. MPC decides to maintain status quo on the policy rate and continue with the accommodative stance as long as necessary – at least during the current financial year and into the next financial year – to revive growth on a durable basis and mitigate the impact of COVID-19 on the economy. Consequently, the reverse repo rate under the LAF remains unchanged at 3.35 per cent and the marginal standing facility (MSF) rate and the Bank Rate at 4.25 per cent.

The decisions are in consonance with the objective of achieving the medium-term target for consumer price index (CPI) inflation of 4 per cent. The outlook for inflation has turned adverse relative to expectations in the last two months. The substantial wedge between wholesale and retail inflation points to the supply-side bottlenecks and large margins being charged to the consumer. Cost-push pressures continue to impinge on core inflation, which has remained sticky and could firm up as economic activity normalises and demand picks up.

The MPC is of the view that, inflation is likely to remain elevated, barring transient relief in the winter months from prices of perishables. This constrains monetary policy at the current juncture from using the space available to act in support of growth. At the same time, the signs of recovery are far from being broad-based and are dependent on sustained policy support. A small window is available for proactive supply management strategies to break the inflation spiral being fuelled by supply chain disruptions, excessive margins and indirect taxes. Further, efforts are necessary to mitigate supply-side driven inflation pressures. Monetary policy will monitor closely all threats to price stability to anchor broader macro-economic and financial stability.

Tags : MPC ANNOUNCEMENT REPO RATE