RBI MPC maintains repo rate at 4% for 6th time; policy stance unchanged

FPJ Web DeskUpdated: Friday, June 04, 2021, 10:41 AM IST
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RBI Governor Shaktikanta Das | Mitesh Bhuvad

The Reserve Bank of India's Monetary Policy Committee (MPC) voted unanimously to keep policy rates unchanged at its bi-monthly meet. The repo rate--rate at which RBI lends money to banks-- is at 4 percent, while the reverse repo rate -- the rate at which RBI borrows money from the banks--unchanged at 3.35 percent. The repo rate has been unchanged at 4 percent for the sixth consecutive policy.

The RBI had last revised its policy rate on May 22, 2020, in an off-policy cycle to perk up demand by cutting interest rate to a historic low.

The Marginal Standing Facility (MSF) rate and bank rates remain unchanged at 4.25 percent. Reverse repo rate also remains unchanged. Consequently, the reverse repo rate will also continue to earn 3.35 per cent for banks for their deposits kept with RBI.

RBI Governor Shaktikanta Das, while announcing the bi-monthly monetary policy review on Friday, said that the MPC was of the view that policy support from all sides needed to nurture recovery in the economy. He added that MPC will maintain a favourable policy stance until needed.

The central bank lowered its estimate for economic growth to 9.5 percent for the current fiscal from earlier projection of 10.5 percent due to the impact of the second COVID wave.

This is the first MPC meeting after official data showed that Indian economy contracted 7.3 per cent in the last fiscal, weighed down by nationwide lockdown that pummelled consumption and halted most economic activities.

With regard to inflation, the governor said that retail inflation is likely to be 5.1 per cent during the current fiscal.

MPC has been given the mandate to maintain annual inflation at 4 percent until March 31, 2026, with an upper tolerance of 6 percent and a lower tolerance of 2 percent.

Prevailing onslaught from COVID's second wave as well as persistently high prices will deter the Reserve Bank of India (RBI) from initiating any tapering exercise, economists had said.

COVID impact

As of now, India suffers from a massive spike in Covid-19 infections.

Consequently, the situation has forced state governments to implement local lockdowns and travel restrictions which have started to slowdown economic activity.

This trend has impacted economic activity. Accordingly, the RBI revised India's FY22 growth estimates to 9.5 percent from 10.5 per cent.

Besides, RBI governor Das said vaccination process should help to normalise economic activity. Furthermore, the RBI pegged retail inflation for FY22 CPI-based inflation at 5.2 percent.

(With inputs from agencies)

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