Reserve Bank of India governor Shaktikanta Das announced the new monetary policy on Wednesday, declaring an accommodative policy stance. Das informed that the repo rate would remain unchanged at 4 per cent.
The reverse repo rate was also kept unchanged at 3.35 per cent.
Das announced the new monetary policy after a three-day meeting of the six-member Monetary Policy Committee (MPC). He informed that the MPC decided to continue with the accommodative policy stance to sustain growth.
RBI governor Das said that the MPC voted unanimously for keeping interest rate unchanged and decided to continue with its accommodative stance as long as necessary to support growth and keep inflation within the target.
“Recovery of the Indian economy is gaining traction and it’s in better shape than last MPC meeting,” Shaktikanta Das said, adding that the RBI took more than 100 measures since the onset of the Covid-19 pandemic.
Growth projection
Das also informed that the inflation trajectory was better than anticipated and the growth impulses were strengthening. “We hope to sail towards normal times, due to resilience of economic fundamentals of our economy,” the RBI governor said.
Das maintained an unchanged GDP growth projection and said that India was on the way to achieve a GDP of 9.5 per cent in the current fiscal year of 2021-22.
“This consists of 7.9 per cent in the second quarter, 6.8 per cent in the third quarter and 6.1 per cent in the fourth quarter of 2021-22. Real GDP growth for the first quarter of fiscal year 2022-23 is projected at 17.2 per cent,” the RBI governor said.
On bonds
Das said that the central bank will stop bond purchases under Government Securities Acquisition Programme (G-SAP). Announcing the bi-monthly MPC outcome, Das added that given the liquidity overhang as well as the absence of fresh government borrowing for GST compensation, the bond buys are not needed. The central bank, however, will continue to carry out open market operations as needed.
Majority of the economists expected RBI’s MPC to keep the key lending rate unchanged.
India’s central bank has slashed the repo rate by 115 basis points (bps) since March 2020 to soften the blow from COVID-19 crisis. This follows 135 bps worth of rate cuts since the beginning of 2019. Economists, however, expect that RBI could hint at a gradual policy normalisation, setting the stage for a reverse repo rate hike in its December policy.