RBI keeps repo rate unchanged at 4%, maintains accommodative stance
The Reserve Bank of India on Wednesday kept key interest rates unchanged and maintained an accommodative stance in the wake of rising Covid-19 cases in the country.
The central bank’s Monetary Policy Committee (MPC) kept the repo rate unchanged at 4 per cent, while the reverse repo rate has been maintained at 3.35 per cent. The MPC unanimously voted to keep the key interest rates unchanged. The decision is in line with what economists had predicted earlier.
It may be noted that the repo rate is the key interest rate at which RBI lends short-term funds to commercial banks, while the reverse repo is the rate at which RBI borrows from them.
In his monetary policy address, RBI Governor Shaktikanta Das said that the central bank will maintain an accommodative stance as long as it is necessary to mitigate the impact of the Covid-19 pandemic. He explained that maintaining the status quo seems desirable at this juncture as the growth and inflation outlook remains uncertain.
Das also highlighted the recent surge in Covid-19 cases in the country, adding that it has resulted in domestic growth uncertainty. He indicated that tightening of restrictions by some state governments could lead to slower economic recovery.
“The recent surge in Covid-19 cases adds uncertainty to the domestic growth outlook amid tightening of restrictions by some state governments,” Das said.
As a result, the RBI has retained its projection of real GDP growth for 2021-22 at 10.5 per cent. “The projection of real GDP growth for 2021-22 is retained at 10.5%,” said Shaktikanta Das.
At the moment, the RBI seems to be worried mostly about the growth and inflation outlook. While inflation sharply increased in March, the growth outlook could be serious hit by the second Covid-19 wave, which has already led to lockdown-like curbs in many parts of the country.