The Reserve Bank of India Monetary Policy Committee Thursday kept both the repo rate and the reverse repo rate unchanged. The repo rate stayed at 4% and the reverse repo rate at 3.3%, ANI reported.
The repo rate is the rate at which RBI lends to its clients generally against government securities. The reverse repo rate allows banks to deposit funds with the central bank and earn interest on it.
RBI Governor Shaktikanta Das made the announcements in a media briefing. “Taking into consideration all factors, the GDP [Gross Domestic Product] growth in the first half of the year is estimated to remain in the contraction zone,” Das said, referring to the economic fallout of a lockdown imposed to combat the coronavirus pandemic. “For the year 2020-’21 as a whole, real GDP growth is also estimated to be negative.”
It was widely expected that the RBI would either cut the key rates or keep them steady, due to rising inflation and grim projections of economic growth rate, to due the lockdown, Moneycontrol reported.
On Thursday, Das said that while economic activity has begun to recover, fresh surges in cases in areas have forced new lockdowns. “Accommodative stance of the monetary policy will continue as long as necessary to revive growth and mitigate the impact of Covid-19 pandemic, while ensuring that inflation remains within target going forward,” he said.”
Retail inflation rose to 6.09% in June this year from 5.84% in March, breaching the central bank’s target of 2% to 6%. Das said on Thursday that the central bank will enhance liquidity support for financial markets, ease financial stress caused by the coronavirus and strengthen credit discipline in the economy.
In May, the Monetary Policy Committee cut interest rates by 40 bps points to 4%, following an accommodative policy stance. Over the course of 2020, the committee has reduced the repo rate by 115 basis points.
“We anticipate an asymmetric cut of 25 basis points in the repo rate and 35 basis points in the reverse repo Rate in August 2020, in a split decision from the MPC,” Aditi Nayar, principal economist at ICRA Limited, an independent Indian investment information and credit rating agency, had said earlier on Thursday. “ICRA expects the MPC to look through the recent inflation prints, and further ease policy rates during the upcoming policy review, rather than waiting for inflation to soften first.”