Yet Another Declaration by the RBI. Is the Stagnant Repo Rate Going to Benefit the Nation?

RBI and MPC delineate their schedule and isolate the repo rate for the coming five years.

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The RBI reserved its status quo for the fifth time as it maintained the repo rates.  BI Governor Shaktikanta Dasheaded rate-setting panel, Monetary Policy Committee (MPC), has left the repo unchanged at 4 percent. The reverse repo rate stands at 3.35 percent.

What did the RBI Governor say?

Keeping inflation as the target, the RBI governor announced that the Central Bank will maintain an accommodative monetary policy stance to support growth. The RBI will maintain the retail inflation at 4 percent with a margin of 2 percent on either side for another five-year period. In view of the recent surge, several uncertainties prevailed over the economic growth that suggested more focus on containing the spread of the virus to enable recovery. The central bank retained economic growth for 2021-22 fiscal at 10.5 percent in 2021-22 fiscal’s first monetary policy.

Also Read: RBI seems Uncomfortable with cryptocurrency

MPC

The six-member MPC was authorized to cap the interest rate.  After the last meeting, the central bank maintained the key interest rate unchanged. The RBI decided that the six-member MPC, which decides on key interest rates, will meet six times during the financial year 2021-22. Half of the committee, which is headed by the RBI Governor, is made up of external independent members. As per the schedule, the second meeting of the MPC in the next fiscal will be held on June 2, 3, and 4; third meeting (August 4-6); fourth meeting (October 6-8); fifth meeting (December 6-8) and sixth meeting (February 7-9, 2022).

TPT Policy Advocacy and Recommendations

  • Currently, every industry has been whiplashed by the pandemic. Economic activities, on the whole, have severely disrupted with the closure of business, slowing consumption by consumers and government as well as the declining international trade. As part of the interventionist, lenient monetary policy as part of anti-crisis measures to maintain liquidity in the financial system in connection with the current economic crisis, RBIsignificantly reduced interest rates.
  • However, in order for this easing of monetary policy not to increase the risk of the future financial crisis, it is also necessary to constantly and permanently improve the process of managing credit, operational, liquidity, IT systems, cybercrime, etc. Several countries have launched simultaneous, pro-development, interventionist, anti-crisis programs to save business entities from mass bankruptcy by introducing additional temporary tax breaks or exemptions, subsidies to employees’ remuneration under the fiscal policy. RBI should also observe such implementations to bounce back the depreciating economy.
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Yet Another Declaration by the RBI. Is the Stagnant Repo Rate Going to Benefit the Nation?
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RBI and MPC delineate their schedule and isolate the repo rate for the coming five years.
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THE POLICY TIMES
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