Insight Online News
Mumbai/New Delhi, Oct 8 : As widely expected, the Reserve Bank of India (RBI) on Friday held the repo rate steady at 4 per cent and maintained an accommodative policy stance to support economic growth and recovery.
Repo rate or repurchase rate is the interest rate at which RBI lends to commercial banks. It is the key tool of the central bank to contain inflation or price rise by regulating the supply of money in the economy.
“Based on an assessment of the evolving macroeconomic and financial conditions and the outlook, the MPC (Monetary Policy Committee) voted unanimously to maintain status quo with regard to the policy repo rate and by a majority of 5 to 1 to retain the accommodative policy stance,” RBI Governor Shaktikanta Das said while announcing the bi-monthly monetary policy on Friday.
“Consequently, the policy repo rate remains unchanged at 4 percent and the stance remains accommodative 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 marginal standing facility (MSF) rate and the bank rate remain unchanged at 4.25 per cent,” he further said.
The reverse repo rate also remains unchanged at 3.35 per cent.
Commenting on the monetary policy, ICRA Chief Economist Aditi Nayar said, “We continue to expect the MPC to maintain the repo rate and accommodative stance unchanged until demand side factors become the clear driver of inflationary pressures and start to harden inflationary expectations, in order to continue to nurture the demand recovery. The Committee is likely to prefer to look through the surge in fuel costs, while continuing to nudge the Government to relook at fuel taxes.”
“The festive season trends and upcoming GDP growth print for Q2 FY2022 will guide whether the MPC sets the stage in the December 2021 policy for a change in the policy stance to neutral in the February 2022 policy review,” she added.
The RBI Governor said that growth impulses seemed to be strengthening and the inflation trajectory was turning out to be more favourable than anticipated.
“In spite of global headwinds, we hope to emerge from the storm and sail towards normal times, steered by the underlying resilience of the macroeconomic fundamentals of the Indian economy,” he said.
Most high-frequency data such as monthly merchandise exports, air traffic and factory output show that the economy is well on track and picking up pace on the back of wider coverage of vaccines against Coronavirus.
The RBI has retained its earlier projection for real GDP growth at 9.5 per cent in current fiscal consisting of 7.9 per cent in Q2; 6.8 per cent in Q3; and 6.1 per cent in Q4 of 2021-22. Real GDP growth for the first quarter of FY23 is projected at 17.2 per cent.
The RBI Governor said that consumer price inflation (CPI) headline momentum is moderating which, combined with favourable base effects in the coming months, could bring about a substantial softening in inflation in the near-term.
“Taking into consideration all these factors, CPI inflation is projected at 5.3 per cent for 2021-22: 5.1 per cent in Q2, 4.5 per cent in Q3; 5.8 per cent in Q4 of 2021-22, with risks broadly balanced,” he said.