Loans will not be cheap yet, the Reserve Bank has not changed the repo rate; Fears of a 9.5% decline in GDP growth

Posted on 9th Oct 2020 by rohit kumar

The Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) has decided to keep the repo rate stable, which is currently 4%. The decision has been taken after a three-day meeting from October 7. This will also not reduce the loan rates from banks. Earlier in August, there was no change in the repo rate. RBI Governor Shaktikanta Das anticipates a 9.5% decline in real GDP growth for FY 2021.

 

Rates After Three Day Meeting

 

Governor Shaktikanta Das said that all the members of the committee have unanimously decided to maintain the repo rate at 4%. All 6 MPC members voted in favor of keeping interest rates stable. Besides, the RBI's stance on interest rates remains unmodified. Earlier, in August, the RBI did not change the interest rates. While interest rates were cut by 40 basis points in May and 75 basis points in March. In 2020, the rates have been cut by 115 basis points.

 

- Repo rate: 4%

- Reverse Repo Rate: 3.35%

- Cash Reserve Ratio: 3%

- Bank Rate: 4.25%

 

What is the repo rate?

 

The Repo rate is the rate at which banks are lent by RBI. Banks give loans to customers with this loan. Now the low repo rate means that many types of loans from the bank will become cheap. While the reverse repo rate is the exact opposite of the repo rate. The reverse rate is the rate at which banks receive interest from the RBI on deposits. Liquidity in the markets is controlled through the reverse repo rate. That is, stabilizing the repo rate means that the loan rates from banks will also be stable.

 

Economy hopes to improve

 

Governor Shaktikanta Das said that real GDP growth could decline by 9.5% in FY 2021. He said that now the focus of RBI is more on revival after Covid-19. He says that the recent economic data are showing signs of economic recovery. This is due to the improvement in the rural economy and the increased economic activities due to the festive season.

 

Das said that in FY 2021, grain production has increased. On the other hand, there has been a growth in construction due to the concessions being received from the government in unlocked. Apart from this, migrant laborers are also returning to work. However, inflation may remain above its target in September. Apart from this, there are also strong signs of recovery in the global economy. There has been a recovery in manufacturing and retail sales in many countries. Apart from this, there are also signs of improvement in consumption and exports.

 

Appointment of new members

 

The government-appointed three new members Ashima Goyal, Shashank Bhide, and Jayant R Verma on 7 October in the Monetary Policy Committee (MPC). Earlier, due to non-fulfillment of the quorum of MPC, RBI postponed the meeting, which was to be held on 29, 30 September and 1 October. Because the term of the old members was over.

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