Why RBI has kept repo rates unchanged

Contact Counsellor

Last Updated09/12/2021

For the eighth time in a row, the Reserve Bank of India's Monetary Policy Committee (MPC) maintained key policy rates steady.
It was Decided to ""Continue with the accommodative policy as long as required to recover and sustain growth on a long-term basis and continue to offset the impact of COVID-19 on the economy, ""while ensuring that inflation remains within the goal moving ahead.""

The repo rate is the rate at which the RBI loans money to banks; it is currently at 4%.
The reverse repo rate is the rate at which the RBI borrows money from banks, and it is currently at 3.35 %.
The bank rate, currently 4.25 %, is the rate at which the RBI loans short-term cash to banks without security.
Marginal standing facility kept at 4.25%

The MPC has retained the growth target at 9.5% for FY2022.
India’s economy expanded 8.4% in the September quarter from a year earlier.
The RBI also retained retail or consumer price inflation projection at 5.3% in 2021-22.

Chairman(Ex-officio): Governor of the Reserve Bank of India.
Member (ex officio): Deputy Governor of the Reserve Bank of India, in charge of Monetary Policy.
Member (ex officio): One officer of the Reserve Bank of India to be nominated by the Central Board.
Member: Shashanka Bhide, Senior advisor at National Council for Applied Economic Research (NCAER).
Member: Ashima Goyal, Professor at the Indira Gandhi Institute of Development Research in Mumbai.
Member: Jayanth Varma, Professor, Indian Institute of Management, Ahmedabad.

It results in expansionary monetary policy.
This is a monetary policy aimed at increasing the money supply in the economy via lowering interest rates, central banks purchasing government securities, and banks' reserve requirements.
An expansionary monetary policy reduces unemployment and boosts business and consumer expenditure.
The purpose of expansionary monetary policy is to promote economic growth. However, it is possible that it will result in increased inflation.

It results in contractionary monetary policy.
Goal is to reduce (decrease) the money supply in an economy. Increases in key interest rates, which reduce market liquidity, are used to achieve a contractionary monetary policy.
The purpose of a contractionary monetary policy is to reduce the economy's money supply.
Raising interest rates, selling government bonds, and boosting bank reserve requirements are all options.
When the government tries to keep inflation under control, it uses a contractionary strategy.

Overall, the recovery that had been interrupted by the second wave of the pandemic is regaining traction, but it is not yet strong enough to be self-sustaining and durable.
This underscores the vital importance of continued policy support.
Downside risks to the outlook have risen with the emergence of Omicron and renewed surges of COVID-19 infections in a number of countries,