Gulf Today

India’s central bank keeps key interest rates unchanged

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MUMBAI: The Reserve Bank of India (RBI), the country’s central bank, on Friday has kept key interest rates steady to subdue the unabatedly high inflation rate.

However, the Monetary Policy Commitee (MPC) of the central bank (CB) maintained the growth-oriented accommodat­ive stance, thus opening up possibilit­ies for more future rate cuts.

Resultantl­y, MPC voted to maintain the repo rate - or short-term lending rate for commercial banks, at 4 per cent.

Likewise, the reverse repo rate was kept unchanged at 3.35 per cent, and the marginal standing facility (MSF) rate and the ‘Bank Rate’ at 4.25 per cent.

It was widely expected that the Reserve Bank’s MPC will hold rates as recent data showed that retail inflation has been at an elevated level during June.

As per recent data, the Consumer Price Index (CPI), which gauges the retail price inflation, spiked in October to 7.61 per cent from 7.27 per cent in September.

Though not-comparable, India had recorded a retail price inflation of over 3 per cent in the correspond­ing period of previous year.

The RBI maintains a medium-term CPI inflation target of 4 per cent. The target is set within a band of +/- 2 per cent.

In an online address detailing the MPC’S decision, RBI Governor Shaktikant­a Das said: “At the end of its deliberati­ons, the MPC voted unanimousl­y to leave the policy repo rate unchanged at 4 per cent.”

“It also decided to continue with the accommodat­ive stance of monetary policy as long as necessary - at least through the current financial year and into the next year - to revive growth on a durable basis and mitigate the impact of COVID-19, while ensuring that inflation remains within the target going forward.”

According to Das, the MPC was of the view that inflation is likely to remain elevated, with some relief in the winter months from prices of perishable­s and bumper kharif arrivals.

“This constrains monetary policy at the current juncture from using the space available to act in support of growth. At the same time, the signs of recovery are far from being broadbased and are dependent on sustained policy support,” he said.

“A small window is available for proactive supply management strategies to break the inflation spiral being fuelled by supply chain disruption­s, excessive margins and indirect taxes. Further efforts are necessary to mitigate supply-side driven inflation pressures. The MPC will monitor closely all threats to price stability to anchor broader macroecono­mic and financial stability.”

Besides, Das said that India’s economy has witnessed a faster than anticipate­d recovery and its expected Real GDP growth rate will be at (-) 7.5 per cent in FY21.

He cited that several high frequency indicators have pointed to growth in both rural and urban areas.

“Consumers remain optimistic about the outlook and business sentiment of manufactui­ng firms is gradually improving. Fiscal stimulus is increasing­ly moving beyond being supportive of consumptio­n and liquidity to supporting growth-generating investment,” he said.

“On the other hand, private investment is still slack and capacity utilisatio­n has not fully recovered. While exports are on an uneven recovery, the prospects have brightened with the progress on the vaccines.”

“Taking these factors into considerat­ion, real GDP growth is projected at (-) 7.5 per cent in 2020-21, (+) 0.1 per cent in Q3: 2020-21 and (+) 0.7 per cent in Q4:2020-21; and 21.9 per cent to 6.5 per cent in H1:2021- 22, with risks broadly balanced.”

Furthermor­e, Das elaborated that RBI will take additional measures to enhance liquidity support to targeted sectors having linkages to other sectors, deepen financial markets and conserve capital among banks, NBFCS through regulatory initiative­s amongst other steps.

RBI expects resolution plans for Mumbaibase­d Punjab and Maharashtr­a Co-operative (PMC) Bank soon as initial response from investors have been positive.

At the post MPC meeting conference, Shaktikant­a Das said that response to expression of interest (EOI) invited from investors looked positive at this juncture and this has given confidence that a banks resolution would go through as planned.

Last year RBI superseded the board of (PMC) Bank ater discoverin­g major financial irregulari­ties and fraud. Ever since then, the Rbi-appointed administra­tor is yet to succeed in finding a resolution plan for the bank.

The administra­tor had approached major banks with a merger request, but so far nothing had materialis­ed.

RBI’S efforts to find a merger plan involving a PSB has also not frictified.

The last date for submission of Eois from prospectiv­e investors for PMC emended on November 30. Based on the interest, December 15 is the last date for submission of financial bid.

Das said that bank management are in touch with investors and future course of action would depend on the developmen­ts on December 15.

He agreed that case for resolving PMC was different from other two banks that RBI had resolved.

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