Against Market's Expectations, RBI Keeps Repo Rate Unchanged

Repo rate unchanged but RBI cuts the GDP growth forecast for FY20 to 5% in the December monetary policy review
Against Market's Expectations, RBI Keeps Repo Rate Unchanged
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Entrepreneur Staff
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The Reserve Bank of India (RBI) on Thursday kept the benchmark repo rate unchanged at 5.15 per cent in its fifth bi-monthly policy review.

As opposed to the market's expectations, all six members of the monetary policy committee (MPC), headed by the RBI Governor Shaktikanta Das, unanimously voted against repo rate or lending rate cut.

This move came after five consecutive cuts this year that aggregated to 135 bps. The RBI will also keep its accommodative stance unchanged “as long as it is necessary to revive growth, while ensuring that inflation remains within the target.”

Here are the key highlights from the December monetary policy document:

  • In line with the repo rate change, the reverse repo rate and the bank rate remain unchanged at 4.90 per cent and 5.4 per cent, respectively.
  • FY20 real GDP growth projection lowered by 110 bps to 5 per cent from the October projection of 6.1 per cent. GDP growth projection has consistently decreased between February and December from 7.4 per cent to 5 per cent. 
  • Overall liquidity in the system remained in surplus in October and November 2019 despite an expansion of currency in circulation due to festival demand.
  • Central bank’s consumer confidence survey showed that spending on nonessential items of consumption has shrunk compared to a year ago.
  • The MPC notes that economic activity has weakened further and the output gap remains negative.

Related Read: Key Highlights of October 2019 Bi-Monthly Policy Document

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