In the short run, RBI anticipates inflation to remain elevated, while its inflation outlook overall remains highly uncertain.

RBI leaves its key policy rate unchanged at 515 pegs GDP growth at 6 for FY21Image Credit: Picxy.com/navin1474
Money RBI Thursday, February 06, 2020 - 12:22

The Reserve Bank of India has kept its key policy rate unchanged at 5.15% for the second time in a row, maintaining its accommodative policy stance as long as it is necessary to revive growth.

The central bank retained GDP growth at 5% for 2019-20 and pegged it at 6% for the next fiscal.

All six members of the Monetary Policy Committee voted in favour of maintaining status quo on interest rate. However, they have said that there is policy space for further action.

"Economic activity remains subdued and the few indicators that have moved up recently are yet to gain traction in a more broad-based manner. Given the evolving growth-inflation dynamics, the MPC felt it appropriate to maintain status quo, the Monetary Policy Committee (MPC) said.

RBI has also said that it will continue with accommodative stance for as long as it takes. 

In the short run, RBI anticipates inflation to remain elevated, while its inflation outlook overall remains highly uncertain. 

The second simultaneous decision to keep the rates steady comes after the RBI reduced repo rate by 135 basis points between February and October 2019.

This is the first policy announcement from RBI in 2020.

The RBI MPC considers CPI inflation for its monetary policy actions and inflation is expected to be within the comfort zone of the MPC in the next fiscal. However, fiscal deficit has not only breached the target but is budgeted at 3.5% for 2020-21, including the reported off-budget liabilities, it works out to 4.3%. For the current fiscal it is 3.8% estimated. Government has used the 'Escape' clause to expand fiscal deficit.

The breaching of the fiscal deficit target by 0.5 percentage points (from previous budget estimates) for both, the current fiscal, as well as the next, has also weighed in on the MPC decision.

With agency inputs

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