The Reserve Bank of India on Wednesday 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 also kept its growth projection for the next financial year unchanged at 10.5%, despite flagging a risk to global demand due to the second wave of coronavirus cases.
Speaking on domestic markets, Das said that while rural demand remained resilient, demand in urban areas was gaining traction and was expected to pick up further. The RBI governor said that the Gross Domestic Product is expected to grow at 22.6% in the first quarter (April-June) of 2021-’22 and at 8.3% in the second quarter (July-September).
As far as inflation is concerned, Das said that while the February retail inflation figure of 5.03% was within the RBI’s tolerance level, there were upside risks to the trend. He, however, added that recent lowering of fuel prices in retail and global markets is likely to play a role in moderation of food inflation. The RBI projected the retail inflation for the next financial year to come at 5.1%.
Das also said that the monetary policy committee will maintain its “accommodative” stance in policy, and will continue to do so as long as necessary to sustain growth on a durable basis. Announcing a fresh round of purchase of government securities, or G-Secs, worth Rs 1 lakh crore, Das said that the RBI was indirectly expanding liquidity in the market.
The central bank announced two more decisions that can affect consumers on a day-to-day basis. On Wednesday, the RBI raised the limit for end of the day balance for account holders in payments banks from the existing Rs 1 lakh to Rs 2 lakh. Besides, it also extended the fund transfer facilities – National Electronic Funds Transfer, or, NEFT and Real-Time Gross Settlement, or, RTGS – to non-bank payment systems as well. Till now, only banks were allowed to use the facilities.
This is the fifth time in a row that the central bank’s monetary policy committee has decided to keep the policy rate unchanged. The RBI 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.