The Reserve Bank of India on Friday kept the repo rate or its key lending rate unchanged at 4% and reverse repo rate or its borrowing rate at 3.35%. Announcing the decisions of the central bank’s monetary policy committee, at the end of its three-day bi-monthly meeting, RBI Governor Shaktikanta Das said that the decision to maintain status quo on lending rates was taken unanimously by the panel.
The repo rate is the rate at which the RBI 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 central bank projected a Gross Domestic Product growth rate of 10.5% for the financial year 2021-’22, with Das noting that the outlook on growth had turned positive and that the signs of economic recovery have strengthened further. The central bank’s estimate for economic growth next year is 0.5% less than the Centre’s 11% projection, that it announced during the Union Budget presentation on February 1.
“While 2020 has tested our capabilities and endurance, 2021 is setting stage for a new economic era in the course of our history,” Das said. “It’s our strong conviction, backed by forecasts, that in 2021-22 we will undo the damages Covid-19 inflicted on the economy.”
This is the fourth time in a row that the MPC has decided to keep the policy rate unchanged. The central bank last revised its policy rate on May 22 last year, in an off-policy cycle to perk up demand by cutting interest rates to a historic low. The repo rate has been cut by a total 115 basis points since March 2020 to deal with the coronavirus pandemic, following a 135 bps reduction since beginning of 2019.
Das said the recent budget proposals and expenditure plans have raised hopes for a more robust recovery, and the bank stood ready to offer support and to ensure that the government’s Rs 12.06 lakh crore borrowing programme for the coming fiscal year was absorbed smoothly by the market.
Das also pointed out that the consumer inflation rate had fallen back within the central bank’s mandated range of 2%-6%, and revised its projection for the fourth quarter (January-March) of this financial year to 5.2%. In its previous policy meeting, the RBI had projected retail inflation to be at 5.8% during the period. In December, India’s retail inflation had eased to 4.59%, from 6.93% in November.
The RBI governor said that the monetary policy committee decided to maintain its accomodative stance on liquidity. He said that the central bank will look to continue with the stance “at least in this fiscal [2020-21] and into the next one [2021-22] to revive growth on a durable basis and mitigate the impact of Covid-19”.
Meanwhile, the equity markets gave a positive reaction to the RBI’s announcements, as the 30-share BSE Sensex touched a new all-time high of 51,073.27, in the morning trade. At 12.15 pm, the index was up 323.45 points at 50,937.74, while the broader 50-share NSE Nifty was up more than 0.50% and was nearing the 15,000-mark.