RBI bets on growth, keeps key rates unchanged in last review of financial year
Governor Shaktikanta Das said the bank’s monetary policy committee has decided to keep the benchmark repo rate unchanged at 4% (since May 2020), while the reverse repo rate has been maintained at 3.35%
NEW DELHI: The Reserve Bank of India (RBI) on Thursday kept key lending rates of the economy unchanged at record lows in the last monetary review of the current financial year, maintaining what analysts call an “accommodative stance” to spur growth.
Governor Shaktikanta Das said the bank’s monetary policy committee (MPC) has decided to keep the benchmark repo rate unchanged at 4% (since May 2020), while the reverse repo rate has also been maintained at 3.35%. He said the central bank would stay the course with an accommodative stand as long as necessary to push growth.
The MPC’s maintenance of status quo on its bimonthly policy rates for the 10th time comes at a time when policymakers are weighing the impact of the Omicron variant of the coronavirus and inflationary expectations.
Globally, inflation is rising and high prices would eventually find their way into the country, but the RBI is convinced at the moment that it can keep interest rates low. Lower interest rates make borrowing by businesses easier, helping to increase the economy’s output and the GDP rate, but they can also fan inflation.
The repo rate refers to the rate at which commercial banks borrow money by selling their securities to the RBI, while the reverse repo rate is the rate at which the central bank borrows money.
These rates are key to boosting credit and investments by businesses in the economy as India pushes its nascent economic recovery following the Covid-19 pandemic’s third wave. The MPC’s review of the economy is key to markets and general business sentiment required to spur economic activity.
The MPC on Thursday projected FY23 GDP growth rate at 7.8%. It also forecast FY23 consumer inflation at 4.5%, well within the RBI’s tolerable band. While Quarter 1 (Q1) growth was pegged at 17.2%, the Q2 growth rate estimate stood at 7%, Q3 at 4.3% and Q4 at 4.5%.
A Reuters poll has forecast that consumer prices likely shot up to 6% in January, hitting the upper limit of the RBI’s tolerable range. The government is set to release India’s latest consumer inflation number on Monday.
Das said continued monetary support was necessary for a durable and broad-based recovery. As many as 27 of 28 economists surveyed by Bloomberg expected the main repo rate to be held steady.
Thursday’s decision to hold steady on lending rates pushed down bond yields, with the 10-year yield falling over five basis points to 6.5%. One basis point in one-hundredth of a percentage point.
