RBI holds rates, signals stimulus tapering
The Reserve Bank of India (RBI) on Friday kept the repo rate unchanged at a record low for the eighth time straight and continued with an accommodative stance but signalled the start of tapering pandemic-era stimulus measures on economic recovery taking roots..
The repo rate -- the central bank's lending rate -- remains unchanged at 4% and the reverse repo rate -- borrowing rate -- at 3.35%.
He indicated the central bank's willingness to make "gradual" adjustments to the excess liquidity in the monetary system which currently stands at over Rs 9 lakh crore.
"The stance remains accommodative 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," RBI Governor Shaktikanta Das said.
"The worst of the second wave behind us, and substantial pickup in COVID-19 vaccination, giving greater confidence to open up and normalize economic activity," he added.
RBI also retained the GDP forecast for the current financial year at 9.5% and flagged global semiconductor shortages, elevated commodity prices and potential global financial market volatility as downside risks to economic growth.
In his address after the threeday meeting of the rate-setting panel, RBI Governor Shaktikanta Das said recovery in aggregate demand gathered pace in AugustSeptember, and it is reflected in high-frequency indicators, like railway freight traffic; port cargo; cement production; electricity demand; e-way bills; GST and toll collections.
"The ebbing of infections, together with improving consumer confidence, has been supporting private consumption," he said, and added the pent-up demand and the festival season should give further fillip to urban demand in the second half of the financial year.
Also, rural demand is expected to get impetus from continued resilience of the agricultural sector and record production of kharif foodgrains in 2021-22 as per the first advance estimates.
Das also said the improved level in reservoirs and early announcement of the minimum support prices for rabi crops has boosted the prospects for rabi production. The support to aggregate demand from government consumption is also gathering pace.
The Governor said critical support to aggregate demand also came from exports, which remained in excess of USD 30 billion for the seventh consecutive month in September 2021, reflecting strong global demand and policy support. Further, recovery in the services sector is also gaining traction.