Reserve Bank of India (RBI) governor Shaktikanta Das on Friday announced the October bi-monthly monetary policy of the central bank, keeping the repo rate unchanged at 4% for the eighth straight meeting.
The six-member monetary policy committee of the bank voted 5-1 to maintain an accommodative stance to push and sustain nascent growth recovery in Asia’s third-largest economy.
The benchmark repo rate was unchanged at 4%, while the reverse repo rate too stood unchanged at 3.35%. The central bank governor said the panel expected inflation to remain within the target of 6% as the upper limit.
“The MPC also decided to continue with the accommodative stance 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, while ensuring that inflation remains within the target going forward,” the bank latest monetary policy resolution said.
The repo rate refers to the rate at which commercial banks borrow money by selling their securities to Reserve Bank, while the reverse repo rate is the rate at which the central bank borrows money.
These lending rates are key to boosting credit and investments by businesses in the economy as India pushes its nascent economic recovery following the pandemic.
{{/usCountry}}These lending rates are key to boosting credit and investments by businesses in the economy as India pushes its nascent economic recovery following the pandemic.
{{/usCountry}}“We don’t want to rock the boat when the shore is near as there is a journey beyond the shores,” Das said. “To lose patience is to lose the battle.”
Food inflation is expected to remain muted in the coming month on the back of record production of foodgrains, the RBI Governor said.
The RBI has cut the repo rate by 115 basis points (bps) since March 2020 to cushion the blow of the pandemic. This followed a 135-bps worth of rate cuts since the beginning of 2019.
A widely watched forecast by 30 economists for Bloomberg on Wednesday expected the six-member monetary policy committee to leave the repurchase rate at 4%.
The RBI has maintained its FY2021-22 GDP growth forecast at 9.5%, including 7.9% in the second quarter, 6.8% in the third quarter, and 6.1% in quarter four. For the first quarter of 2021-22, GDP growth has been pegged at 17.2%.
Price rise is a key determinant of monetary policies. Moderate inflation helps the Reserve Bank to keep interest rates low to spur economic activity, which has been hit by the pandemic.
Retail prices have been trending lower in the past two months. The central bank also projected a consumer price inflation of 5.3% for the current fiscal year. In Q2, it is seen at 5.1%, 4.5% in Q3, and 5.8% in Q4.
The accommodative stance is jargon that refers to the central bank’s decision to either not increasing lending rates or keeping them low. Moderate inflation is necessary to keeping lending rates cheap, which helps boost a pandemic-ravaged economy.
On inflation, the governor said inflation had been below the RBI’s projections. He said core inflation (which excludes the volatile components of food and fuel) however “remains sticky”, meaning they aren’t budging much from their usual levels.