Reserve Bank of India (RBI)
Reserve Bank of India (RBI)

On October 9, 2020, the Reserve Bank of India (RBI) in its fourth bi-monthly monetary meet decided to keep the repo rate unchanged yet again with an accommodative stance. At present, the repo rate is 4 per cent.

Meanwhile, Shaktikanta Das, RBI Governor stated, MPC decided to continue with the accommodative stance of monetary policy as long as necessary at least through the current financial year and next year.

The Central bank has taken this decision for the second time in a row.

What does that mean:

- At present, RBI has kept the repo rate unchanged which means the interest rate on loans will remain the same. So, with no change in the repo rate, loans linked to Marginal Cost Based Lending Rate (MCLR) will remain the same. It will be a relief for many who were worried about rise in interest rates of loan.

-The unchanged repo rate will stop further reduction in fixed deposit rates. This will be a good news for depositors. At present, RBI’s repo rate is at 4 per cent which means banks can borrow more money at a low cost. So, banks pay low interest on fixed deposits to depositors mainly because RBI offers funds at low interest.

-Repo rate also helps in managing inflation. While low inflation is good for consumers, but very low inflation also indicates low demand for goods and services. During high inflation, costs increase, in the case of low inflation, prices of goods increase whereas it tends to depress wages.

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