The Reserve Bank of India (RBI) on Friday (June 4) decided to leave benchmark interest rate unchanged at 4 per cent but maintained an accommodative stance as the economy faces heat of the second COVID wave.
This is the sixth time in a row that the Monetary Policy Committee (MPC) headed by RBI Governor Shaktikanta Das has maintained status quo. RBI had last revised its policy rate on May 22, 2020, in an off-policy cycle to perk up demand by cutting interest rate to a historic low.
MPC decided to maintain status quo, that is keeping benchmark repurchase (repo) rate at 4 per cent, Das said while announcing the bi-monthly monetary policy review on Friday.
Consequently, the reverse repo rate will also continue to earn 3.35 per cent for banks for their deposits kept with RBI, PTI reported.
Das said 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.
The central bank lowered its estimate for economic growth to 9.5 per cent for the current fiscal from earlier projection of 10.5 per cent due to the impact of the second COVID wave.
This is the first MPC meeting after official data showed that Indian economy contracted 7.3 per cent in the last fiscal, weighed down by nationwide lockdown that pummelled consumption and halted most economic activities.
With regard to inflation, the governor said that retail inflation is likely to be 5.1 per cent during the current fiscal.
MPC has been given the mandate to maintain annual inflation at 4 per cent until March 31, 2026, with an upper tolerance of 6 per cent and a lower tolerance of 2 per cent.
Governor said India’s forex reserves may have crossed a record level of USD 600 billion on the back of robust capital flows. As per the RBI’s data issued on May 28, the country’s foreign exchange reserves rose by USD 2.865 billion to a record high of USD 592.894 billion for the week ended May 21, boosted by gold and currency assets.
“Based on the current estimation, we believe that our forex reserves may have crossed USD 600 billion,” he said while announcing the bi-monthly monetary policy review. To boost liquidity, the RBI announced several steps including a special liquidity facility for various sectors impacted by the COVID-19 pandemic. The central bank also announced G-sec Acquisition Programme (G-SAP) 2.0 which will help in calming yields and control undue volatility faced by market participants in the government securities market. During the second quarter of the current fiscal, the RBI said it will purchase Rs 1.20 lakh crore of G-sec from the secondary market, as part of G-SAP 2.0. RBI will buy Rs 40,000 crore of government securities on June 17, and the remaining schedule will be announced later, he said. Reserve Bank of India (RBI) on Friday (June 4) decided to leave benchmark interest rate unchanged at 4 per cent but maintained an accommodative stance as the economy faces heat of the second COVID wave.