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RBI Keeps Repo Rate Unchanged at 5.15%
Moneylife Digital Team 05 December 2019
Investor Interest
The Reserve Bank of India (RBI) on Thursday kept unchanged its repo rate (short-term lending) at 5.15% in its fifth bi-monthly monetary policy review for 2019-20. While the monetary policy committee (MPC) recognised that there is monetary policy space for future action, however, given the evolving growth-inflation dynamics, it felt it appropriate to take a pause at this juncture, RBI says.
 
Following the move, the reverse repo rate (short-term borrowing) stands at 4.90%. Subsequently, the marginal standing facility (MSF) and the Bank Rate have also come down to 5.40%.
 
In a statement, RBI says, “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 MPC noted that economic activity has weakened further and the output gap remains negative. However, the central bank says several measures already initiated by the government and the monetary easing undertaken by the RBI since February 2019 are gradually expected to further feed into the real economy. 
 
“Data on corporate finance and on projects sanctioned by banks and financial institutions suggest some early signs of recovery in investment activity, though its sustainability needs to be watched closely. The need at this juncture is to address impediments, which are holding back investments. The introduction of external benchmarks is expected to strengthen monetary transmission. In this context, there is also a need for greater flexibility in the adjustment in interest rates on small saving schemes. In the judgement of the MPC, inflation is rising in the near-term, but it is likely to moderate below target by second quarter of FY2020-21. It is, therefore, prudent to carefully monitor incoming data to gain clarity on the inflation outlook. Similarly, the forthcoming union budget will provide better insight into further measures to be undertaken by the Government and their impact on growth,” RBI added.
 
Dr Soumya Kanti Ghosh, Group Chief Economic Adviser of State Bank of India (SBI) says, the RBI decision to maintain status quo has taken the market by complete surprise, but this should not be construed as an unanticipated policy surprise and the markets must read through the fine print carefully.

"The markets does not like unexpected news and to that extent yields have jumped. However, markets must interpret it as a temporary pause. In a similar vein, the current pause with an accommodative stance could just be an attempt to allow the impact of surplus liquidity and transmission to permeate through the system. But in the same vein, given that inflation will stay elevated in the next couple of months at close to at least 5.3%-5.4%, a February cut is ruled out (December inflation numbers will be available only) at least logically. By the same logic, an April cut looks difficult. Thus, it might be a longer pause. Experience in Australia and elsewhere has shown that inflation is difficult to fine-tune within a narrow band. Thus, RBI can take a cue from Australian central bank, which aims at maintaining the inflation target over the business cycle," he added.
 
All members of the MPC, including Dr Chetan Ghate, Dr Pami Dua, Dr Ravindra H Dholakia, Dr Michael Debabrata Patra, Bibhu Prasad Kanungo and RBI governor Shaktikanta Das – voted in favour of the decision.
Comments
B Ravi
7 years ago
When are you amending the old rule of Rs 1 lac to 5 lacs can be withdrawn from maratha sahakari bank ltd which is under your regulation. Retired person from private sector has no money except his savings, FDs in these banks. Education , medicine and hospitalisation is very high expensive because of your mercy for last 65 years. New rules and modification made by you except this Rs 1 lac rule. Pl do notkeep pending till we die.
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