Highlights:
- On August 6, the MPC of the RBI retained key rates unchanged.
- The repo rate remains at 4%, MSF at 4.25 percent, and reverse repo at 3.35 percent.
- The repo rate is the rate at which the RBI lends money to commercial banks, while the reverse repo rate is the rate at which the RBI borrows money from banks.
RBI Governor Shaktikanta Das revealed-on Friday that the Reserve Bank of India’s (RBI) Monetary Policy Committee (MPC) held the repo rate at 4% while maintaining a “accommodative stance” as long as necessary to offset the impact of the COVID-19 pandemic.
According to the governor of the central bank, the MPC decision was unanimous, and the reverse repo rate was kept at 3.35 percent. Both the bank rate and the marginal standing facility (MSF) rate remained unchanged at 4.25 percent.
The MPC was highly expected to maintain the key repo rate. According to a recent Bloomberg poll, all 21 economists polled expected the MPC to keep the benchmark repurchase rate at 4%, and the central bank to announce another tranche of its so-called government securities acquisition programme.
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The Reserve Bank of India has kept its policy rate unchanged for the seventh time in a row. The policy rate was last altered on May 22, 2020, during an off-policy cycle in which the central bank lowered interest rates to a historic low in order to boost demand.
Das stated in his speech that the economy is in a lot better condition than it was in June 2021, and that the central bank will remain cautious against a third wave. According to him, the MPC voted 5:1 to maintain an “accommodative” stance as long as required to promote growth.
The RBI governor spoke on retail inflation, saying that CPI inflation surprised on the upside in May, but that the price movement has eased.
According to Das, economic activity has evolved largely consistent with the MPC’s predictions, and the monsoon has resumed after a brief hiatus.
He stated that while the outlook for aggregate demand is improving, the underlying conditions remain weak, and that more work is needed to restore supply-demand balance in several sectors.
In terms of GDP growth, Das stated that the RBI’s prediction for India’s real GDP for the financial year 2021-22 remains at 9.5 percent (FY22). The RBI raised its GDP growth forecast for the first quarter (Q1FY22) to 21.4 percent from 18.5 percent previously. It also anticipated GDP at 7.3 percent in the second quarter (Q2FY22), vs 7.9 per cent estimated earlier, 6.3 percent in the third quarter (Q3FY22), vs 7.2 per cent previously estimated, and 6.1 percent in the fourth quarter (Q4FY22), 6.6 per cent previously estimated.
In terms of CPI inflation, Das stated that the RBI has revised the FY22 CPI prediction to 5.7 percent from the previous estimate of 5.1 percent.
