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Monetary Policy: Repo Rate Remains Unchanged At 4%

On expected lines, the Monetary Policy Committee (MPC) has kept the Repo Rate unchanged at 4 per cent and have maintained an "accommodative" stance said RBI Governor Shaktikanta Das

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With the threat of inflation looming large, the Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) has kept Repo Rate unchanged at 4 per cent. Analysts and sector experts were anticipating this move because it is the inflation and growth data that tends to contribute to the direction in which the MPC will weigh. The MPA discussed for three-days before arriving at its decision. The Reverse Repo Rate also remained unchanged at 3.35 per cent.

Repo rate is the rate at which the central bank of a country lends money to commercial banks in the event of any shortfall of funds. Repo rate is used by monetary authorities to control inflation. The Reverse repo rate is the rate at which the central bank borrows money from commercial banks within the country. It is a monetary policy instrument that can be used to control the money supply in the country.

So what does it mean for the consumer? "The positive side is that an unchanged repo rate will ensure that home loan interest rates will not harden anytime soon," says Anuj Puri, Chairman - ANAROCK Property Consultants. "It is quite clear that increasing interest rates would impact overall demand at a time when the government is keen to boost consumption," he said.

Announcing the MPC decision, the RBI Governor Shaktikanta Das said: "Economy is recuperating faster with more sectors joining the recovery path." Das also made the following observations. He said the CPI inflation is seen at 6.8 per cent for Q3.  The real GDP growth for 2021, he said, is seen at negative(-) 7.5 per cent versus negative (-) 9.5 per cent projected earlier. He also observed that for Q3FY21, the GDP is seen at 0.1 per cent versus -5.6 per cent projected earlier. Das said the second half of FY21 is expected to show positive growth.

On inflation projection, Das said it is expected to remain elevated in the September print, but ease gradually towards the target over Q3 and Q4. RBI said the focus of liquidity measures will now include the revival of activity in specific sectors that have both backward and forward linkages and multiplier effects on growth. It said the central bank will conduct special and outright bond purchases and announced on-tap TLTRO for Rs 1 lakh crore at 4 percent till March 2021, besides, OMO worth Rs 20,000 crore.