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RBI keeps repo, reverse repo rates unchanged; predicts real GDP growth at -7.5%

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The Reserve Bank of India’s (RBI) Monetary Policy Committee (MPC) on Friday decided to keep the repo rate unchanged at 4 per cent. The reverse repo rate has been also kept unchanged at 3.35 per cent.

The rates have been kept unchanged by the central bank for the third time in a row amid concerns over an elevated inflation. Meanwhile, RBI has projected real gross domestic product (GDP) growth for 2020-21 at minus 7.5 per cent. The central bank had slashed the repo rate by 115 basis points since late March to support growth.

Announcing the decision, RBI Governor Shaktikanta Das said, “Monetary Policy Committee (MPC) voted unanimously to keep the policy repo rate unchanged at 4 per cent.” He added that the MPC has also decided to maintain the accommodative stance.

Accommodative stand of RBI

“MPC decided to continue with accommodative stands of monetary policy as long as necessary, at least till current financial year and into next year to revive growth on a durable basis and mitigate the impact of coronavirus while ensuring that inflation remains within the target,” Shaktikanta Das said.

Shaktikanta Das said the RBI is ready to take further measures to ease liquidity. “We will continue to respond to global uncertainty. Will use various instruments at an appropriate time to ensure ample liquidity is available in the system,” the RBI governor said

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Shaktikanta Das added that the central bank is committed to preserving depositors’ interest in the financial system and went on to add that “financial markets are working in an orderly fashion.”

“The Marginal Standing Facility (MSF) rate and the bank rate remain unchanged at 4.25%. The reverse repo rate remains unchanged at 3.35 per cent,” Shaktikanta Das said, adding, the inflation is likely to remain elevated.

“The Monetary Policy Committee was of the view that inflation is likely to remain elevated with some relief in the winter months from prices of perishables and bumper Kharif arrivals,” he said.

Economy recovering faster

Shaktikanta Das said the economy is recuperating faster with more sectors joining the recovery path. He said the real Gross Domestic Product (GDP) growth for 2021 is projected at minus 7.5 per cent. He said the Reserve Bank of India is projecting the GDP growth for Q3 at +0.1% and +0.7% for Q4.

Das said, “We are projecting GDP growth for Q3 at +0.1 per cent and +0.7 per cent for Q4. The real GDP growth for 2021 is projected at minus 7.5 per cent. The recovery in rural demand is expected to strengthen further while urban demand is also gaining momentum.”

The latest economic projections confirmed the government’s view that the economy is in a V-shaped recovery, with the GDP contraction easing to 7.5 per cent in the July-September period from a record 23.9 per cent in the previous quarter.

 

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