Why RBI has kept repo rates unchanged

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Why RBI has kept repo rates unchanged

  • 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.""

Current statistics

  • 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%

What is the MPC assessment on growth and inflation

  • 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.

Monetary Policy Committee (MPC)

  • 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.

What if Rates are decreased

  • 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.

What if Rates are increased

  • 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.

View of RBI Governor

  • 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,