MPC keeps repo rate at 4%, signals more easing ahead

India’s gross domestic product (GDP) will contract by 9.5% this financial year, the Reserve Bank of India (RBI) said on Friday, as of the coronavirus disease (Covid-19) pandemic continues to take its toll on domestic as well as global economies.

Unveiling the bi-monthly monetary policy statement, RBI governor Shaktikanta Das said that GDP was likely to turn positive at 0.5% in the JanuaryMarch quarter of the current financial year.

Das said the central bank expects, keeping in mind the uncertain Covid-19 trajectory, the economy to contract 9.8% in the second quarter of this fiscal year and 5.6% in the third quarter. It will slightly grow by 0.5% in the fourth quarter of 2020-21.

In the 2021-22 financial year, the economy will bounce back and grow 20.6%, the RBI chief forecast.

In the quarter ended June, Asia’s largest economy posted a record contraction of 23.9% as the pandemic and the 68-day hard lockdown enforced from March 25 to prevent the conta

The Reserve Bank of India (RBI) left key interest rates unchanged on Friday but signalled more easing ahead to support an economy that it sees contracting 9.5% in the current fiscal.

The six-member Monetary Policy Committee (MPC), with three newly inducted external members, voted unanimously to retain the benchmark repurchase or repo rate at 4%, in line with economists’ forecasts, while keeping its policy stance accommodative, implying it could ease again. RBI governor Shaktikanta Das said the policy stance would remain accommodative “as long as necessary, at least through the current financial year and into the next year to revive growth”.

The central bank had slashed the repo rate by 115 basis points since late March before hitting a pause button in August.

To bring down borrowing cost, RBI announced a number of unconventional steps, including doubling of the size of openmarket bond purchases to ₹20,000 crore, offer to buy state debt, and easing a corporate cash crunch through a ₹1 lakh crore fund available on tap.

Top highlights from Monetary Policy Committee meet

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