RBI monetary policy Explained: Why have rates been kept unchanged yet again?

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News: Reserve Bank of India’s(RBI) Monetary Policy Committee(MPC) has announced its bi-monthly monetary policy review for the month of December.

Facts:

Key Takeaways:

  • Repo Rate: It is the rate at which the RBI lends money to the banks for a short term.It remains unchanged at 4%.
  • Reverse Repo Rate: It is the short term borrowing rate at which RBI borrows money from banks.It remains unchanged at 3.35%
  • Marginal Standing facility: It is a window for banks to borrow from the Reserve Bank of India in an emergency situation when interbank liquidity dries up completely.It has remained unchanged at 4.25%.
  • Inflation: Inflation has remained consistently above the upper end of RBI’s mandated 2-6% target range every month barring March,2020.
  • Growth Projection: RBI has revised its GDP growth expectation for 2020-21 to -7.5% from -9.5% which signals improvement.
  • Accommodative Stance: RBI has maintained an accommodative stance implying more rate cuts in the future if need arises to support the economy hit by the COVID-19 pandemic while ensuring inflation remains within the target.
  • Tighter Norms for UCBs and NBFCs: RBI has announced the introduction of risk-based internal audit norms for large urban cooperative banks(UCBs) and non-banking financial companies (NBFCs) as part of measures aimed at improving governance and assurance functions at supervised entities.
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Additional Facts:

  • Monetary Policy Committee(MPC): It is a statutory committee of the Reserve Bank of India which consists of six members with three nominated by the Union government and three representing the RBI.It is mandated by law to ensure that retail inflation stays within a band of two percentage points of the target inflation rate of 4%.
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