Mumbai: The Reserve Bank of India (RBI) on Friday decided to keep benchmark interest rate unchanged at 4 per cent but maintained an accommodative stance as the economy is yet to recover from the impact of second COVID wave.
This is the seventh 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.
Consequently, the reverse repo rate will also continue to earn 3.35 per cent for banks for their deposits kept with RBI.
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.
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.
Observing that economy is slowly recovery from brief hiatus, the Governor said, some of the high frequency indicators reflect recovery.
Meanwhile, RBI raised the retail inflation projection for the current fiscal to 5.7 per cent on account of supply side impediments, firm crude oil prices and higher cost of raw materials.
In the previous Monetary Policy Committee (MPC) meeting in June, the RBI’s CPI inflation projection for the current fiscal stood at 5.1 per cent.
The Reserve Bank of India (RBI) on Friday decided to keep the repo rate — at which it lends short term money to banks — unchanged at 4 per cent but maintained an accommodative stance as the economy is yet to recover from the impact of the second COVID wave.
RBI Governor Shaktikanta Das while announcing the decision of the MPC said that a “preemptive monetary policy response” at this stage may kill the nascent and hesitant recovery (of the economy) that is trying to secure a foothold in the extremely difficult conditions.
“Inflation may remain close to the upper tolerance band for the second quarter of 2020-21. But this pressure should ebb in the third quarter of 2021-22 on account of kharif harvest arrivals and supply side measures,” Das said.
“Taking into consideration all these factors, CPI (consumer price index) inflation is now projected at 5.7 per cent during 2021-22,” he said.
This consists of 5.9 per cent in Q1; 5.3 per cent in Q3; 5.8 per cent in Q4 (of FY 2021-22) and for the first quarter of 2022-23 at 5.1 per cent with risks broadly balanced, Das said.
RBI has the mandate to keep inflation in a band of 2-4 per cent, with tolerance level of 2 per cent on either side.