Highlights

Indian Central Bank Reserve Bank of India held its Monetary Policy Committee meeting. During the meeting, the RBI has kept the repo rate unchanged at 4 per cent. Repo rate (RR) is the rate at which RBI lends to banks. The Reverse Repo Rate (RRR) is to continue at 3.35 per cent.

Points To Note

  • Monetary Policy Committee meeting concluded that the “Accommodative Stance” of monetary policy is to continue. Accommodative Stance means the apex bank will keep cutting rates in order to inject money in to the financial system. When the accommodative stance of the bank is addressed as “neutral”, it means that Reserve Bank of India may alter rates in any direction to control the flow of the currency in India.
  • The bank rate and the Marginal standing facility (MSF) were kept unchanged at 4.25 per cent
  • Real GDP for the FY 2020-21 has been projected at -7.5 per cent.
  • The Q3 GDP of FY 2020-21 was projected to grow at 0.1 per cent. In Q4, the GDP is expected to grow at 0.7 per cent.
  • The consumer price index Inflation for Q3 was projected at 6.8 per cent and for Q4 at 5.8 per cent.
  • The limit of contactless card transaction (CCT) has been raised from Rupees 2,000 to Rupees 5,000 per transaction. This is to be implemented in January 2021.
  • The RTGS system is to be made 24/7 in few days.

RTGS is Real Time Gross Settlement

Inflation

During the coronavirus crisis, the Inflation in India had remained consistently above the upper end of central bank’s target inflation of 2 per cent to 6 per cent. The retail inflation calculated based on the consumer price index continued to raise till October 2020 reaching 7.61 per cent. This is the highest retail inflation since May 2014. In May 2014, it was 8.33 per cent.

GDP Projections by central bank

In October 2020, the Reserve Bank of India in its Monetary Policy Committee meet said that the real GDP growth of India is to be at -9.5 per cent. In Q2 (July, August and September) of 2020, the GDP contracted by 7.5 per cent as compare to 2019. It contracted by 23.9 per cent in Q1 due to the impact of COVID-19 as compared to that of 2019.

This is being called as “V-shaped recovery”. It reflects rapid resilience of Indian Economy.

What is the Marginal Standing Facility?

It is a tool to increase liquidity by borrowing money from central bank. The Marginal Standing Facility was introduced in FY 2011-12 during the monetary policy reform exercise. This borrowing is at an interest rate above the repo rate (RR). This penalty interest rate is called Marginal Standing Facility rate. The Reserve Bank of India I has decided to extend marginal standing facility to Regional Rural Banks. Till now, Regional Rural Bank’s haven’t been allowed to access liquidity windows of the apex bank. RBI Monetary Policy Committee Meeting RBI Monetary Policy Committee Meeting