Mumbai: The Reserve Bank of India (RBI) on Friday kept key interest rates unchanged at record lows to support the nascent economic recovery amid the ferocious second wave of Covid-19 pandemic.
Announcing the second monetary policy of the 2021-22 fiscal after a 3-day review meeting, RBI said the repo rate will stay at 4 per cent, while the reverse repo rate or the central bank's borrowing rate will be unchanged at 3.35 per cent.
“Based on its assessment the MPC voted unanimously to maintain status quo that is keeping the policy repo rate unchanged at 4 per cent,” said RBI Governor Shaktikanta Das in a statement.
The repo rate is the interest rate at which the Central Bank lends to banks to meet short term liquidity requirements. In turn, the repo rate decides interest rates of personal loans, home loans, consumer loans, etc.
The repo rate was cut by a total of 115 basis points last year to soften the blow from the pandemic.
In fact, this is the sixth time in a row that the Monetary Policy Committee (MPC) of the RBI has decided to keep the policy rate unchanged.
The RBI had last revised its policy rate on May 22, 2020, in an off-policy cycle to perk up demand by cutting interest rates to a historic low.
GDP likely to grow at 9.5% in 2021-22
The Reserve Bank lowered the country's growth projection for the current financial year to 9.5 per cent from 10.5 per cent estimated earlier, amid uncertainties created by the second wave of the coronavirus pandemic.
Shaktikanta Das said the sudden rise in COVID-19 infections, and fatalities has impaired the near nascent recovery that was underway, but has not snuffed it out.
The impulses of growth are still alive, he said, and added that the aggregate supply conditions have shown resilience in the face of the second wave.
In April, the Reserve Bank had projected the real GDP growth for 2021-22 at 10.5 per cent.
India's economy had contracted by less-than-expected 7.3 per cent in the fiscal year ended March 2021, after growth rate picked up in the fourth quarter. The gross domestic product (GDP), the total value of economic output, grew by 1.6 per cent in the January-March period, up from 0.5 per cent in the previous quarter.
RBI projects retail inflation at 5.1% in FY22
The Central Bank projected the retail inflation at 5.1 per cent in the current financial year ending March 31, 2022.
Taking into consideration the measures taken so far as well as the upside risks, Das said the CPI (Consumer Price Index) inflation is projected at 5.1 per cent during 2021-22.
This consists of 5.2 per cent in the first quarter, 5.4 per cent in the second quarter, 4.7 per cent in the third quarter and 5.3 per cent in the fourth quarter of this fiscal, with risks broadly balanced, he said.
According to Das, upside risks to inflation emanates from persistence of second COVID wave and consequent restrictions on activity on a virtually pan-India basis.
"In such a scenario, insulating prices of essential food items from supply side disruptions will necessitate active monitoring and preparedness for coordinated, calibrated and timely measures by both Centre and state governments to prevent emergence of supply side bottlenecks and increase in retail margins," the governor said.
The projection is well within the Monetary Policy Committee's target to keep the rate of inflation at 4 per cent with an upper or lower tolerance level of 2 per cent.
(With PTI Inputs)
