• The Monetary Policy Committee of the Reserve Bank of India (RBI) has announced the extension of its accommodative policy stance for the rest of this year as well as 2021-22 and forecasted a GDP revival in coming months.
  • RBI had previously introduced a number of measures in its Monetary Policy Report for dealing with the Covid-19 induced economic setback.



  • RBI has kept key policy rates unchanged to revive growth of the economy and mitigate the economic impact of Covid-19 pandemic.
  • The Repo and reverse repo rate unchanged at 4% and 3.35% respectively because of high inflation.
  • Risk weights, i,e, the capital required to be set aside on individual home loans, have been relaxed and the loan limit for retail and small business borrowers have been raised.
  • This would give a boost to the job-intensive real estate sector that has been suffering in the pandemic.
  • Real-Time Gross Settlement (RTGS) will be available round the clock.
  • Targeted Long Term Repo Operations (TLTRO) of Rs 1,00,000 crore for the revival of specific sectors, and Open Market Operations (OMOs) for State Development Loans (SDLs) have been announced.
  • This will assure market participants of access to liquidity and easy finance conditions.
  • Long Term Reverse Repo Operation (LTRO) is a mechanism to facilitate the transmission of monetary policy actions and the flow of credit to the economy. This helps in injecting liquidity in the banking system.
  • Open Market Operations (OMO) is one of the quantitative monetary policy tools which is employed by the central bank of a country to control the money supply in the economy.
  • OMOs are conducted by the RBI by way of sale or purchase of government securities (g-secs) to adjust money supply conditions.
  • The central bank sells g-secs to commercial banks to remove liquidity from the system and buys back g-secs to infuse liquidity into the system.




  • Real gross domestic product (GDP) in FY21 will fall by 9.5%.
  • GDP growth may break out of contraction and enter a positive zone by Q4 of the current fiscal year (2020-21)


  • Starting from a modest recovery the economic activity is expected to gain traction in Q3.
  • The real GDP growth in 2020-21 is expected to be negative at -9.8% in Q2 of 2020-21,-5.6% in Q3 and 0.5% in Q4.
  • Real GDP is likely to grow by 20.6% in the Q1 of 2021-22.



  • Inflation is expected to decline in the next 3 months and is likely to ease to the projected target of around 4% (within a band of +/- 2%) by Q4 of FY’21.
  • Supply chain disruptions is the major factor driving up inflation. As supply chains are restored, the inflation would come down.
  • The retail inflation growth was 6.69%, as of August 2020.
  • Restart of Economy
  • The economy is likely to witness a three-speed recovery i.e. individual sectors showing varying paces with fastest, modest and slowest recovery rates.
  • Apart from agriculture, sectors such as fast-moving consumer goods, automobiles, pharma and power would revive first.



  • The Monetary Policy Committee is a statutory and institutionalized framework under the Reserve Bank of India Act, 1934, for maintaining price stability, while keeping in mind the objective of growth.
  • The Governor of RBI is ex-officio Chairman of the committee.
  • The committee comprises six members (including the Chairman) – three officials of the RBI and three external members nominated by the Government of India.
  • Decisions are taken by majority with the Governor having the casting vote in case of a tie.
  • The MPC determines the policy interest rate (repo rate) required to achieve the inflation target (4%).
  • An RBI-appointed committee led by the then deputy governor Urjit Patel in 2014 recommended the establishment of the Monetary Policy Committee.



  • It is the rate at which the central bank of a country (Reserve Bank of India in case of India) lends money to commercial banks in the event of any shortfall of funds.
  • It is used by monetary authorities to control inflation.
  • In the event of inflation, central banks increase the repo rate as this acts as a disincentive for banks to borrow from the central bank.
  • This ultimately reduces the money supply in the economy and thus helps in arresting inflation.
  • The central bank takes the contrary position in the event of a fall in inflationary pressures.
  • Ideally, a low repo rate should translate into low-cost loans for the general masses. When the RBI slashes its repo rate, it expects the banks to lower their interest rates charged on loans.
  • Reverse repo rate is the rate at which the RBI borrows money from commercial banks within the country.


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