The repo rate as of February 2020 is 5.15% after rates were held steady subsequent to a rate cut of 25 basis points (bps) announced at the MPC Meeting held on 10th October 2019. RBI has reduced the repo rate by 115 bps in 2020 on the back of 135 bps of rate cuts in 2019 and has maintained an accommodative stance despite the worryingly high inflation levels due to … We also expect the RBI to begin providing a much more transparent future guidance like Central Banks in the rest of the world to avoid dislocations in the market. However, the increased liquidity from lower repo rate can also have a side effect in the form of increased inflation.
Introduction of repo agreements under LAF in India was a key banking sector reform introduced based on the recommendations of the Narasimhan Committee. Normally, the Reserve Bank of India will announce the term repo auction by specifying the total amount as and when there is requirement of funds by commercial banks for more than a day’s duration. We expect September CPI at 7.18% (heavy rains have led to a spike in vegetable prices), as against our earlier expectation that inflation seems to have peaked in August at 6.7%. This prompts them to offer loans at cheaper rate to consumers. This is the key reason why repo rate cuts usually occur in relatively smaller amounts such as 25 basis points i.e. “The central bank may chart out a path for future growth revival as it is currently constrained by inflation,” said Abheek Barua, chief economist at HDFC Bank. This includes personalising content and advertising. The views expressed are the author’s own). 1 in terms of loan disbursal as per industry estimates. All Rights Reserved Registered Investment Advisor (INA100003949)| CIN - U74900HR2011PTC044581. The RBI has already reduced the repo rate by a total of 115 basis points since February, on top of the 135 basis points in an easing cycle last year, from 6.50 per cent, responding to slowing growth. longer period) repo, the applicable interest rate varies depending on the auction rate. Overall, expect a 'wait and watch' policy,” she said. The government has appointed eminent economists Ashima Goyal, Jayanth R Varma and Shashanka Bhide as members of the MPC for four years till 2024 as members of the rate-setting MPC. We use cookies to understand how you use our site and to improve user experience.
Economists believe that may tie its hands even though the economy is on the decline. It is auctioned either twice a week or depending on the market requirement. However, we believe that appointment of the new members does not dilute the key mandate of the MPC in any way — keeping inflation within the target range.
Meanwhile, the inflation trajectory too remains uncertain. Indian Railways completes tunnel work in 10 years, UTI AMC, Mazagon Dock Shipbuilders IPOs: Here’s how to check share allotment status online, COVID-19: Pakistan wary of second wave as winter approaches, 99 Navodaya Vidyalayas being constructed in backward, minority dominated areas: Mukhtar Abbas Naqvi, Apple iPhone SE (2020) long-term review: Small phone, huge impact, More IRCTC special trains! Financial Express is now on Telegram. In its February forecast, the RBI had raised its economic growth projections to 6% for the current financial year (2020-21).
This can lead to increased liquidity in the market which increases overall consumption in the economy. Repo rate changes can lead to changes in other interest rates such as the interest earnings from deposits and interest rate applicable to loans. In India, the repo rate is decided at the MPC (Monetary Policy Council) Meeting which is presided over by the RBI Governor. But wary of high inflation and higher inflationary expectations of the households, it may choose not to cut the key interest (repo) rate this time around.
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