The Reserve Bank of India on Friday kept the key lending rate or the repo rate unchanged at 4% and reverse repo rate or its borrowing rate at 3.35%. This is the seventh consecutive time that the central bank has maintained status quo.
Announcing the decisions of the monetary policy committee, at the end of its three-day bi-monthly meeting, RBI Governor Shaktikanta Das said a 5:1 majority supported retaining the accommodative monetary policy stance as long as necessary to revive growth and to mitigate the impact of Covid-19 on economy.
The repo rate is the rate at which the central bank lends to its clients generally against government securities. The reverse repo rate, on the other hand, allows banks to deposit funds with the central bank and earn interest on it.
The RBI has cut the repo rate by a total of 115 basis points since March 2020 to support the economy during the coronavirus crisis. In 2019, the central bank had slashed rates by 135 basis points.
Das also announced that the central bank has retained its growth projection for current financial year (2021-’22) at 9.5%.
Last week, the International Monetary Fund lowered its economic growth projection for India for 2021-’22 from 12.5% to 9.5%. This was done because the second wave of the coronavirus pandemic in India was “catastrophic”, unlike in other countries, the global body’s Chief Economist Gita Gopinath said.
Das, however, on Friday said the economy was in a better position than at the time of the meeting of the monetary policy committee in June. “The need of the hour is not to drop our guard and to remain vigilant against any possibility of a third wave especially in the background of rising infections in certain parts of the country,” he warned.
The governor said continued policy support from all sides was required to nurture the recovery from the coronavirus crisis. High-frequency indicators suggest that private and government consumption, investment, external demand are all on path of regaining traction, he added.
The monetary policy committee also raised its inflation projection for the current fiscal to 5.7% compared to 5.1% in the last announcement.