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 sixth consecutive time that the central bank has maintained status quo.
Announcing the decisions of monetary policy committee, at the end of its three-day bi-monthly meeting, RBI Governor Shaktikanta Das said they will maintain the accommodative policy stance as long as necessary to revive growth and to mitigate the impact of the coronavirus pandemic. He added 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 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 RBI 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 slashed rates by 135 basis points.
“The MPC was of the view that at this juncture policy support from all sides is required to gain the momentum of growth that was evident in the second half of 2021 and to nurture the recovery after it has taken root,” Das said. “Unlike the first wave of Covid-19 where economy came to a standstill, economic impact during the second wave will be contained.”
He also said vaccines will be important to resumption of economic activity in the country.
The central bank revised its growth projection for 2021-’22 to 9.5% from previous 10.5%.
Das said the sudden rise in Covid-19 infections and fatalities in the second wave of pandemic, has “impaired the nascent [economic] recovery” that was underway, but has not snuffed it out, PTI reported.
“The impulses of growth are still alive,” he said, adding that supply conditions have shown resilience in the face of the second wave.
The revision in growth rate projection by the central came days after government data showed that India’s growth rate for the financial year of 2020-’21 contracted by 7.3% – the sharpest ever decline in the economy. The Gross Domestic Product for the fourth quarter (January to March) grew by 1.6%.
The RBI on Friday projected retail inflation at 5.1% for the current fiscal, adding that its trajectory was likely to be shaped by uncertainties related to the pandemic. A normal south-west monsoon and recent supply side interventions are expected to ease cereals and pulses inflation, Das said.