RBI keeps repo rate unchanged at 4.0%

Press release: Dated 08-12-2021

Based on an assessment of the current and evolving macroeconomic situation, the Monetary Policy Committee (MPC) at its meeting today (December 8, 2021) decided to keep the policy repo rate under the liquidity adjustment facility (LAF) unchanged at 4.0 percent. The reverse repo rate under the LAF remains unchanged at 3.35 percent and the marginal standing facility (MSF) rate and the Bank Rate at 4.25 percent.

These decisions are in harmoniousness intending to achieve the medium-term target for consumer price index (CPI) inflation of 4 percent within a band of +/- 2 percent while supporting growth.

Private consumption, despite strong recovery in Q2:2021-22, remains below its pre-pandemic level and demand for contact-intensive services could potentially face headwinds if authorities take pre-emptive steps to contain the fallout of Omicron.

The potential resurgence in COVID-19 infections with new mutations, persisting shortages and bottlenecks, and the widening divergences in policy actions and stances across the world as inflationary pressures persist. A tightening of global financial conditions poses risks to global economic activity and India’s prospects as well.

In the last policy review, the RBI had kept the key lending rates unchanged for eight consecutive times. The repo rate, at which the RBI lends short-term funds to banks, was kept unchanged at 4 percent.

The reverse repo rate, at which the RBI borrows from banks, was kept unchanged at 3.35 percent. The Marginal Standing Facility (MSF) rate was also kept unchanged at 4.25 percent.

The last time the RBI changed the policy rate was in May 2020. The central bank had dropped the key policy rates in May 2020 to lows to support the economy hit by the Covid-19 pandemic.

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