RBI keeps policy rates unchanged, projects FY22 GDP growth at 10.5%

 

This was the fourth time in a row that the RBI was leaving interest rates unchanged.

The Monetary Policy Committee also decided to continue with the accommodative stance as long as necessary to revive growth on a durable basis and mitigate the impact of COVID-19 on the economy, while ensuring that inflation remains within the target going forward.

The Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI), on the basis of an assessment of the current and evolving macroeconomic situation, has decided to keep the policy repo rate under the liquidity adjustment facility (LAF) unchanged at 4.0%.

Consequently, the reverse repo rate under the LAF remains unchanged at 3.35% and the marginal standing facility (MSF) rate and the Bank Rate at 4.25%.

The MPC also decided to continue with the accommodative stance as long as necessary — at least during the current financial year and into the next financial year — to revive growth on a durable basis and mitigate the impact of COVID-19 on the economy, while ensuring that inflation remains within the target going forward.

“These decisions are in consonance with the objective of achieving the medium-term target for consumer price index (CPI) inflation of 4 % within a band of +/- 2 %, while supporting growth,” the RBI said.

Taking into consideration several factors, the projection for CPI inflation has been revised by the RBI to 5.2 % in Q4:2020-21, 5.2 % to 5.0 % in H1:2021-22 and 4.3 % in Q3: 2021-22, with risks broadly balanced.

It has also projected the real GDP growth at 10.5% in 2021-22 — in the range of 26.2 to 8.3% in H1 and 6.0 % in Q3.

Food prices

The MPC noted that the sharp correction in food prices has improved the food price outlook, but some pressures persist, and core inflation remains elevated.

Pump prices of petrol and diesel have reached historical highs. “An unwinding of taxes on petroleum products by both the Centre and the States could ease the cost push pressures,” it said.

“What is needed at this point is to create conditions that result in a durable disinflation. This is contingent also on proactive supply side measures,” the RBI said.

It said growth was recovering, and the outlook had improved significantly with the rollout of the vaccine programme in the country. The Union Budget 2021-22 had introduced several measures to provide an impetus to growth.

“The projected increase in capital expenditure augurs well for capacity creation thereby improving the prospects for growth and building credibility around the quality of expenditure. The recovery, however, is still to gather firm traction and hence continued policy support is crucial,” it said.

Taking these developments into consideration, the MPC decided to continue with an accommodative stance of monetary policy till the prospects of a sustained recovery are well secured while closely monitoring the evolving outlook for inflation.

All members of the MPC — Dr. Shashanka Bhide; Dr. Ashima Goyal; Prof. Jayanth R. Varma; Dr. Mridul K. Saggar; Dr. Michael Debabrata Patra; and Shri Shaktikanta Das — unanimously voted for keeping the policy repo rate unchanged at 4 %.