RBI keeps repo rate unchanged

MUMBAI: The Reserve Bank of India (RBI) on Wednesday kept key interest rates unchanged at record lows while pledging to buy ₹1 lakh crore of government bonds this quarter to cap borrowing costs in a bid to support an economy facing a resurgence of the pandemic.

In the first monetary policy of the 2021-22 fiscal, the central bank stuck to its accommodative stance as long as necessary, amid concerns of rising infections that could derail the nascent economic recovery.

RBI’s key lending rate, the repo rate, which was cut by a total of 115 basis points last year to soften the blow from the pandemic, will stay at 4% while the reverse repo rate or the central bank’s borrowing rate will be unchanged at 3.35%.

Governor Shaktikanta Das said the six-member monetary policy committee (MPC) voted unanimously “to continue with the accommodative stance as long as necessary to 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”.

“The recent surge in infections has, however, imparted greater uncertainty to the outlook and needs to be closely watched, especially as localised and regional lockdowns could dampen the recent improvement in demand conditions and delay the return of normalcy,” he said.

The governor announced a second market G-sec acquisition programme or G-SAP 1.0 wherein RBI committed to open market purchase of government securities.

In April-June, it is committed to buy ₹1 lakh crore bonds, with first debt purchases starting from April 15.

RBI had bought ₹3 lakh crore of bonds in the last fiscal (2020-21) and planned similar or more spending in the financial year April 2021 to March 2022.

“We are now better prepared to meet the challenges posed by this resurgence in infections” he added.

While retaining its GDP growth outlook for FY22 at 10.5% after a 7.5% per cent contraction in 2020-21, RBI revised the outlook for inflation, with price rise seen at 5% in the fourth quarter of last fiscal year. It is projected to rise to 5.2% in the first half of the current fiscal.

Das reiterated that the banking system liquidity will continue to remain in surplus even

after meeting all requirements of the financial market segments and productive sectors of the economy.

An accommodative stance implies a rate cut in the future if the need arises to support the economy.

This is the fifth time in a row that MPC has decided to keep the policy rate unchanged. RBI had last revised its policy rate on May 22, 2020.