RBI keeps policy rates unchanged 7th time in a row; repo retained at 4%
For the seventh time in a row, the RBI on Friday (August 6) decided to keep benchmark interest rate unchanged at 4 per cent, but kept flexibility as the economy is yet to recover from the impact of the second COVID wave.
The six-member Monetary Policy Committee (MPC) headed by RBI Governor Shaktikanta Das has maintained status quo. The Central bank 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.
The RBI Governor said that the MPC decision was taken unanimously.
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The MPC decided to maintain the status quo, that is keeping benchmark repurchase (repo) rate at 4 per cent, Das said while announcing the bi-monthly monetary policy review.
Consequently, the reverse repo rate will also continue to earn 3.35 per cent for banks for their deposits kept with RBI.
Das said 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.
The MPC has 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.
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Observing that the economy is slowly recovering from a brief hiatus, the RBI Governor said some of the high-frequency indicators reflect recovery.
The MPC was expected to keep the key repo rate unchanged. According to a recent Bloomberg poll, all 21 economists surveyed expected the MPC to leave the benchmark repurchase rate unchanged at 4 per cent, while the Central bank was widely expected to announce another tranche of its so-called government securities acquisition program.
Das said the economy is in a much better position as compared to June 2021, adding the RBI would remain vigilant against the possibility of a third wave. He said that the MPC voted with a 5:1 majority to continue with an “accommodative” stance as long as necessary to support growth.
On retail inflation, the RBI Governor said the CPI inflation surprised on the upside in May, adding the price momentum, however, moderated.
Das said the economic activity has evolved broadly along with the expectations of the MPC and monsoon revived after a pause.
On the Gross Domestic Product growth, Das said the Central bank’s projection for India’s real GDP is maintained at 9.5 per cent for the financial year 2021-22 (FY22). The RBI hiked the first quarter’s (Q1FY22) GDP growth to 21.4 per cent from its earlier estimate of 18.5 per cent.
It further estimated GDP forecast at 7.3 per cent in the second quarter (Q2FY22) vs 7.9 per cent estimated earlier, 6.3 per cent in the third quarter (Q3FY22) vs 7.2 per cent previously estimated and 6.1 per cent in the fourth quarter (Q4FY22) vs 6.6 per cent previously estimated.
