RBI keeps repo rate unchanged at 5.15%

Raises inflation projection to 6.5% for Q4:2019-20 and 5.4-5% for H1:2020-21, projects GDP growth at 6% for 2020-21

The Monetary Policy Committee (MPC) of the Reserve Bank of India at its meeting today on 6 February 2020 has decided to keep the policy repo rate under the liquidity adjustment facility (LAF) unchanged at 5.15%.

Consequently, the reverse repo rate under the LAF remains unchanged at 4.90% and the marginal standing facility (MSF) rate and the Bank Rate at 5.40%.

The MPC also decided to continue with the accommodative stance as long as it is necessary to revive growth, while ensuring that inflation remains within the target.

 

These decisions are in consonance with the objective of achieving the medium-term target for consumer price index (CPI) inflation of 4% within a band of +/- 2%, while supporting growth.

The CPI inflation projection is revised upwards to 6.5% for Q4:2019-20; 5.4-5.0% for H1:2020-21; and 3.2% for Q3:2020-21, with risks broadly balanced from earlier estimate of 5.1-4.7% for H2:2019-20 and 4.0-3.8% for H1:2020-21.

GDP growth for 2020-21 is projected at 6.0% - in the range of 5.5-6.0% in H1 and 6.2% in Q3. Real GDP growth for 2019-20 was projected in the December 2019 policy at 5.0% - 4.9-5.5% in H2. GDP growth for H1:2020-21 was projected at 5.9-6.3%.

The 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. 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. Accordingly, the MPC decided to keep the policy repo rate unchanged and persevere with the accommodative stance as long as necessary to revive growth, while ensuring that inflation remains within the target.

The MPC notes that while there is a need for adjustment in interest rates on small saving schemes, the external benchmark system introduced from 1 October 2019 has strengthened monetary transmission.

All member including Dr. Chetan Ghate, Dr. Pami Dua, Dr. Ravindra H. Dholakia, Dr. Janak Raj, Dr. Michael Debabrata Patra and Shri Shaktikanta Das voted in favour of the decision.

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