MPC Current Affairs - 2020

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RBI cuts Repo Rate

RBI today released its 4th bi – monthly policy review.

  • The Reserve Bank of India cut repo rate by 25 base points to 5.15%. It is the lowest since 2010. This is the fifth consecutive rate cut of the Shaktikanta Das led panel.
  • The RBI also cut GDP growth estimates to 6.1% from earlier 6.9%

All the members of the MPC – Monetary Policy Committee unanimously voted to reduce the repo rate. Last month Government cut the corporate tax rate from 30% to 22% to revive the slow growth rate.

Repo rate

Repo rate is the rate at which the central bank lends money to the commercial banks. With RBI cutting repo rate, inflation would increase in the future. The current inflation of India is 3.21%. This is below the RBI target of 4%.

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RBI lowers Repo Rate

The six-member monetary policy committee (MPC) headed by RBI Governor Shaktikanta Das has lowered the repo rate by 25 basis points to 6.25 per cent in a 4-2 vote.

Important decisions by the MPC

The features of the decisions taken by MPC are:

  • Together with lowering the repo rate by 25 basis points to 6.25 per cent, the policy stance has been changed to neutral from calibrated tightening.
  • The shift in stance to neutral provides flexibility to meet growth challenges.
  • The change in stance also signals higher chances of more cuts in the coming months if inflation persisted within tolerable limits.
  • A large part of the current investment recovery has been driven by government spending and it was necessary to broad base the revival with a private sector boost.

Other announcements made by RBI

  • The limit of collateral free bank loans for farmers to Rs 1.6 lakh from Rs 1 lakh
  • Greater operational freedom for Banks to offer interest rates to bulk deposits.
  • The definition of “bulk deposits” has been increased to Rs 2 crore from Rs 1 crore currently.
  • The headline inflation is likely to persist within the RBI’s tolerable level of 4 per cent.

While the decision to change the monetary policy stance was unanimous, Deputy Governor Viral Acharya and another MPC member, Chetan Ghate, voted for status quo in interest rates, while Das and three others voted for a cut in interest rates.

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