RBI keeps interest rates unchanged
„Economy to grow at 9.5%; inflation seen at 5.1%
Mumbai: The Reserve Bank of India on Friday left key interest rates unchanged at record lows as it reiterated its commitment to keep its monetary policy accommodative, to help the economy recover from the worst outbreak of Covid-19 infections. It lowered its forecast for India’s economic growth to 9.5 per cent for current financial year ending March 31, 2022, from the previous 10.5 per cent estimate .
Caught between slowing growth amid the second wave of the Covid pandemic and inflationary pressures, the Reserve Bank of India’s (RBI) monetary policy committee (MPC) stayed put on policy rates on Friday. The MPC also continued with its accommodative stance “as long as necessary” to support growth.
A status quo in the policy repo rate means that there is unlikely to be any change in your equated monthly instalments (EMIs) on your home loans or car loans as of now. On the flip side, your fixed deposits too would continue to fetch the same low returns.
This was the committee’s second bi-monthly monetary policy meeting of the current fiscal and it was widely expected that the rates would remain steady. The MPC, which is the rate setting panel, has kept the repo rate unchanged in the last five bi-monthly policy meets, too.
The six-member monetary policy committee headed by governor Shaktikanta Das voted unanimously for keeping repo rate -- RBI's key lending rate -- unchanged at 4 per cent, and the reverse repo rate—the borrowing rate—at 3.35 per cent.
“The MPC was of the view that at this juncture, policy support from all sides is required to regain the momentum of growth that was evident in
H2:2020-21 and to nurture the recovery after it has taken root. Accordingly, the MPC decided to keep the policy rate at its current level of 4 per cent and to continue with the accommodative stance as long as necessary to revive and sustain growth on a durable basis and continue to mitigate the impact of Covid-19 on the economy, while ensuring that inflation remains within the target going forward,” said the RBI governor.
Anticipating some impact on the economy of the second Covid-19 wave, the RBI also trimmed the growth forecast by 100 basis points at 9.5 per cent from 10.5 per cent. Inflation for FY22 was revised upwards by 10 basis points with risks broadly balanced.
One basis point is one hundredth of a percentage point.
The RBI has projected CPI inflation at 5.1 per cent for FY22 with 5.2 per cent in Q1; 5.4 per cent in
Q2; 4.7 per cent in Q3; and
5.3 per cent in Q4 FY22. The rising trajectory of international commodity prices, especially of crude, together with logistics costs, pose upside risks to the inflation outlook while a normal south-west monsoon should help to keep cereal price pressures in check.
Deploying an expanded set of tools to support financial conditions in the economy, including interventions in bond and foreign exchange markets, the RBI also continued with its targeted support approach to the most stressed segments.
“We believe inflation management could pose a serious challenge to RBI when the fuel price pass through starts to occur,” said India Ratings.
The bigger move was with regards to yield management as the RBI stressed on smooth liquidity management and orderly government securities borrowings. To soften the G-Sec yield, the RBI announced G-SAP 2.0 with a higher amount of Rs 1.2 lakh crore.
On the liquidity front, the RBI has created a new on-tap liquidity window for contact intensive sectors and allocated an additional Rs 16,000 crore to Sidbi to meet the funding requirements of micro, small and medium enterprises. Das further stated that his focus now will be on equitable distribution of systemic liquidity than on simply providing adequate systemic liquidity.