RBI Monetary Policy: Central bank keeps repo rate unchanged at 5.15%

The Reserve Bank of India's (RBI) Monetary Policy Committee (MPC) kept the repo rate unchanged in the December policy. With no change this time, the repo rate continues to stand at 5.15 percent.

The central bank has maintained its policy stance at “accommodative”, while the reverse repo rate has been maintained at 4.90 percent.

The repo rate is the rate at which the central bank of the country lends funds to the commercial banks. The commercial banks borrow funds only if they witness a shortfall in their funds. The monetary policy committee of a country uses the reverse repo rate as a tool to control the money supply in the country.

All six members of the Monetary Policy Committee voted in favour of the decision.

A poll conducted by CNBC-TV18 had predicted a 25-basis-point cut in the key rate. Nine out of the ten economists polled by CNBC-TV18 had expected a quarter of a percentage point cut in the repo or repurchase rate.

The repo rate has been cut five times this year, totalling 1.35 percent or 135 basis points.

The RBI has cut the FY20 growth forecast sharply to 5 percent from the 6.1 percent projected earlier. While the 2H FY20 GDP growth is seen at 4.9-5.5 percent versus the 6.6-7.2 percent projected earlier. 1H FY21 GDP growth is predicted at 5.9 percent to 6.3 percent.

The GDP growth for the second quarter of FY20 dropped to 4.5 percent, the weakest pace in more than six years, due to weak consumer demand, slowing factory activities and negative impacts of the prolonged monsoon, according to data released by the government last week.

The RBI’s business expectations index survey indicates a marginal pickup in business sentiments in Q4, said governor Shaktikanta Das. Monetary easing since February, the government’s measures, etc are expected to revive sentiment and spur domestic demand, he added.

While improved monetary transmission and quick resolution of global trade tensions will possibly lead to further upsides to growth projections, Das said.

The CPI inflation forecast for 2H FY20 has been revised to 5.1-4.7 percent from the 3.5-3.7 percent earlier. The CPI inflation forecast for 1H FY21 is 4.0-3.8 percent "with risk evenly balanced".

Retail inflation based on consumer price index (CPI) accelerated to 4.62 percent in October against 3.99 percent in September due to the high prices of food items, government data showed.

Pick-up in arrivals from late Kharif season and the government's measures should help soften vegetable prices by February 2020, said the central bank in a statement. Incipient price pressures were seen in other food items such as milk, pulses, and sugar, added the central bank.

It further said that the crude oil prices are expected to remain rangebound, barring any supply disruptions due to geopolitical tensions.