Repo Rate unchanged at 4%; GDP to shrink by 9.5%: RBI Governor

Maintaining status quo for the second time in a row, RBI decided to keep benchmark interest rate unchanged at 4 per cent.

Mumbai: Maintaining status quo for the second time in a row, Reserve Bank of India on Friday decided to keep benchmark interest rate unchanged at 4 per cent but maintained an accommodative stance, implying more rate cuts in the future if the need arises to support the economy hit by the COVID-19 crisis.

The benchmark repurchase (repo) rate has been left unchanged at 4 per cent, Governor Shaktikanta Das said while announcing the decisions taken by the central bank's Monetary Policy Committee (MPC).

Consequently, the reverse repo rate will also continue to earn 3.35 per cent for banks for their deposits kept with RBI.

He said MPC voted for keeping interest rate unchanged and continued with its accommodative stance to support growth.

RBI had last revised its policy rate on May 22, in an off-policy cycle to perk up demand by cutting interest rate to a historic low.

The 25th meeting of the rate-setting MPC with three new external members -- Ashima Goyal, Jayanth R Varma and Shashanka Bhide -- began on October 7. This is the maiden meeting of the new members who were appointed just a day before the meeting for a term of four years.

It is to be noted that MPC meeting earlier slated between September 29 and October 1 was deferred for the first time as government failed to appoint external members before the scheduled date.

The government moved the interest rate setting role from the RBI Governor to the six-member MPC in 2016. Half of the panel, headed by the Governor, is made up of external independent members.

MPC has been given the mandate to maintain annual inflation at 4 per cent until March 31, 2021, with an upper tolerance of 6 per cent and a lower tolerance of 2 per cent.

GDP likely to contract 9.5 pc in FY'21: RBI

RBI said the economy is likely to contract by 9.5 per cent in the current fiscal.

GDP contracted 23.9 per cent in the first quarter of the fiscal, as per the estimates of the Central Statistics Office (CSO).

In a statement after the meeting of the Monetary Policy Committee, Das said Indian economy is entering into a decisive phase in the fight against coronavirus.

Das also said contraction in economic growth witnessed in the April-June quarter of the fiscal is "behind us" and silver linings are visible, and higlighted the uptick in manufacturing sector, and energy consumption, among others.

According to him, inflation too is likely to ease to the target level in the fourth quarter of 2020-21.

The retail inflation (CPI), which the RBI factors in its monetary policy, has remained above 6 per cent in the recent months. The government has tasked RBI to keep the inflation at 4 per cent, with a margin of 2 per cent on either side.

The governor said GDP is likely to contract by 9.5 per cent in the fiscal ending March 2021.

Das also said growth is likely to pick up in the second half of the fiscal and enter into the positive zone in the January-March quarter.

(PTI Report)