Explained: Why the RBI kept repo rates unchanged

The RBI has kept the repo rate – the rate at which the RBI lends funds to banks – unchanged at four per cent and the reverse repo rate - the rate at which RBI borrows from banks – at 3.35 per cent.

Reserve Bank of India Governor Shaktikanta Das (Express Photo/File)

The Monetary Policy Committee (MPC) of the Reserve Bank of India on Wednesday kept key policy rates unchanged for the ninth time in a row and decided to “continue with the accommodative stance as long as necessary to revive and sustain growth on a durable basis and continue to mitigate the impact of COVID-19 on the economy, while ensuring that inflation remains within the target going forward”.

What are the current policy rates?

The bank has kept the repo rate — the rate at which the RBI lends funds to banks — unchanged at four per cent and the reverse repo rate — the rate at which RBI borrows from banks — at 3.35 per cent. The bank rate — the rate at which RBI lends short-term funds to banks sans security — also remains unchanged at 4.25 per cent. The six-member panel voted 5-1 to retain the accommodative policy.

What does status quo mean?

The unchanged repo rates will help maintain the status quo on the prevailing low interest rate regime for some more time. This works well for borrowers as the environment of affordability will continue. As a result of the looming threat of Omicron and the uncertainty that it has set in motion, tightening of the policy and rate hike will now be postponed to the next calendar year.

What is the MPC assessment on growth and inflation?

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

Also in Explained | Why RBI has kept entry of big businesses in banking on hold for now

What does the RBI Governor say?

“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,” says RBI Governor Shaktikanta Das.

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