RBI Monetary Policy: MPC keeps repo rate unchanged at 4%

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The Reserve Bank of India's (RBI) Monetary Policy Committee (MPC) on August 6 kept the repo rate and reverse repo rate unchanged.

The MPC maintained the policy stance at accommodative, RBI Governor Shaktikanta Das said.

The repo rate is currently 4 percent, while the reverse repo rate is 3.35 percent.

Also read: Here are the highlights of the RBI monetary policy

Repo rate is the rate at which RBI lends funds to commercial banks when needed. In 2020, the RBI had already cut basis by 115 basis points.

The MPC had convened for the three-day meeting from August 4-6. The six members of the MPC – Chetan Ghate,  Pami Dua, Ravindra H Dholakia,  Mridul K Saggar, Michael Debabrata Patra and Shaktikanta Das – unanimously voted to keep the repo rate unchanged.

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The MPC forecasts headline and retail inflation to remain elevated in the second quarter of FY21.

"While space for further monetary policy action is available, it is important to use it judiciously to maximise the beneficial effects for underlying economic activity," Das said while addressing the media.

Also read: MPC expects headline inflation to remain elevated in Q2 2021

"MPC will remain watchful w.r.t. inflation dynamics to further use space available on monetary side when appropriate. Transmission wouldn't have been possible without creating easy liquidity conditions. Easing of liquidity conditions has enhanced transmission," he said.

Economic activity had resumed in May after the nationwide lockdown was eased, but had slowed in July after states reimposed localised lockdowns after a surge in COVID-19 cases.

"Early signs of revival in May/June subdued in July due to renewed surge in COVID-19 cases," Das said.

The MPC said India's real gross domestic product (GDP) growth is expected to be negative in 2020-21.

"An early containment of the COVID-19 pandemic may impart an upside to the outlook. A more protracted spread of the pandemic, deviations from the forecast of a normal monsoon and global financial market volatility are the key downside risks," the MPC said in the statement.