Repo rate, reverse repo rate remain unchanged amid Omicron threat
The Reserve Bank of India kept its repo rate and reverse repo rate unchanged in its bi-monthly policy review meet on Wednesday, RBI governor Shaktikanta Das said following the meeting. India is better prepared to fight the pandemic and in several sectors, the pre-pandemic output has been crossed, Das said adding that the requirement for external financing is modest. But there is a need for policy support because of the emergence of new Covid variant Omicron in several countries, compounded with other reasons.
With the Central Bank deciding to maintain its accommodative stance, the repo rate will remain 4% and the reverse repo rate will remain at 3.35%. The MSF also remains unchanged. There was a 5:1 majority to retain RBI's accommodative stance.
“The recovery that had been interrupted by the second wave of the pandemic is gaining traction but it is not yet strong enough to be self-sustaining and durable. This underscores the vital importance of continued policy support,” the governor said.
The last time the RBI changed these key lending and borrowing rates was in May 2020. When the RBI last changed policy rates, India's GDP slumped by 24.4 per cent. Seeing a recovery, the economy posted a growth of 20.1 per cent during April-June 2021 quarter. The GDP posted a growth of 8.4 per cent in July-September 2021 quarter as against a contraction of 7.4 per cent in the year-ago period. Inflation has been within the RBI's 2-6% target range due to the cuts in taxes on fuel by central and local governments. Damage to food crops due to heavy rains and the price hikes in the telecom sector are, however, likely to push inflation up yet again. Consumer prices rose 4.48% in October from a year earlier, accelerating from September's 4.35%.
Covid-19 new strain Omicron, first identified by South African scientists, is seen as the next big potential source of uncertainties for India's economy. First reported from South Africa, the variant has been classified as a variant of concern by the World Health Organization. It is spreading fast in India with Delhi, Maharashtra, Karnataka, Rajasthan, Gujarat having reported Omicron cases.