RBI maintains status quo in its Monetary Policy, leaves repo rate unchanged at 4%

New Delhi: The six-member Monetary Policy Committee (MPC), headed by the RBI Governor Shaktikanta Das announced its decision on Thursday (August 6).  The RBI has refrained from cutting the benchmark lending rate, leaving the rate unchanged at 4 percent.

This is the 24th meeting of the MPC. In its last Monetary Policy on May 22, the Reserve Bank of India unexpectedly slashed the repo rate by 40 bps to 4%. The reverse repo rate was also reduced by 40 basis points to 3.35% and the Bank Rate at 4.25 percent.

The MPC also decided to continue with the accommodative stance as long as it is necessary to revive growth and mitigate the impact of COVID-19 on the economy, while ensuring that inflation remains within the target going forward.

The MPC noted that the economy is experiencing unprecedented stress in an austere global environment. Extreme uncertainty characterises the outlook, which is heavily contingent upon the intensity, spread and duration of the pandemic – particularly the heightened risks associated with a second wave of infections – and the discovery of the vaccine. In these conditions, supporting the recovery of the economy assumes primacy in the conduct of monetary policy. In pursuit of this objective, the stance of monetary policy remains accommodative as long as it is necessary to revive growth and mitigate the impact of COVID-19 on the economy. While space for further monetary policy action in support of this stance is available, it is important to use it judiciously and opportunistically to maximise the beneficial effects for underlying economic activity.

The MPC has cumulatively cut the repo rate by 115 basis points over these two meetings, resulting in total policy rate reduction of 250 basis points since February 2019, with an aim to boost economic growth. The central bank has been taking steps proactively to limit the damage to the economy caused by the pandemic and subsequent lockdowns.

The government has tasked RBI to keep inflation at 4 per cent (+, - 2 per cent). The central bank mainly factors in the Consumer Price Index (CPI) while formulating the monetary policy.

Higher prices of food items, especially meat, cereals and pulses, pushed the CPI-based retail inflation to 6.09 per cent in June. The inflation rate for July will be announced on August 12.

The monetary policy was in an accommodative mode even before the outbreak of COVID-19, with a cumulative repo rate cut of 135 basis points between February 2019 and the onset of the pandemic.