RBI Monetary policy: Repo rate remains unchanged at 5.15%; here are the key takeaways

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The Reserve Bank of India’s monetary policy committee (MPC) on Thursday announced that the repo rate remains unchanged at 5.15% and maintains an accommodative stance.

With the status quo on the repo rate, the Central Bank’s MPC has decided to continue with the accommodative stance as long as it is necessary to revive growth while ensuring that inflation remains within the target.

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Repo rate is the rate at which the central bank lends money to commercial banks due to any shortfall of funds.

“The Monetary Policy Committee (MPC) recognises that there is policy space available for future action. The path of inflation is, however, elevated and on a rising trajectory through Q4:2019-20. The outlook for inflation is highly uncertain at this juncture,” the RBI said.

“On the other hand, economic activity remains subdued and the few indicators that have moved up recently are yet to gain traction in a more broad-based manner. Given the evolving growth-inflation dynamics, the MPC felt it appropriate to maintain status quo,” it added.

All MPC members including Chetan Ghate, Pami Dua, Ravindra Dholakia, Janak Raj, Michael Debabrata Patra and RBI governor Shaktikanta Das voted in favour of the status quo decision.

The MPC said that while there is a need for adjustment in interest rates on small saving schemes, the external benchmark system introduced from October 1, 2019, has strengthened monetary transmission. It said that these developments should amplify the effects of the cumulative policy rate reductions undertaken by RBI since February 2019 and pull up domestic demand going forward.

MPC also said that financial flows to the commercial sector have improved in recent months.

It added that the higher fiscal deficit in 2019-20 has not resulted in an increase in market borrowings compared to the budget estimates. The fiscal deficit is budgeted to decline to 3.5 percent of GDP for 2020-21.

This is the second consecutive pause by the RBI after it reduced policy rates by 135 basis points in five back-to-back reviews last year.

As part of the developmental and regulatory policies, RBI has said that it will periodically publish a composite “Digital Payments Index” (DPI) to capture the extent of digitisation of payments effectively.

RBI goveror Shaktikanta Das said that global economic activity has remained subdued. Among emerging market economies (EMEs), the Chinese economy slowed down to a 29-year low of 6.1% in 2019, caused by sluggish domestic demand and prolonged trade tensions, he added.

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