Reserve Bank of India (RBI) Governor Shaktikanta Das on Friday announced that the central bank’s Monetary Policy Committee (MPC) has unanimously decided to keep the key rates unchanged while maintaining an accommodative stance.
“Monetary Policy Committee voted unanimously to keep the policy repo rate unchanged at 4%. MPC also decided to continue with the accommodative stance of monetary policy as long as necessary at least through the current financial year and next year,” he said.
As of now, the repo rate currently stands at 4 per cent while the reverse repo rate remains unchanged at 3.35 per cent. It may be noted that the Marginal Standing Facility Rate and bank rate remains unchanged at 4.2 per cent.
The development matches expectations of several experts who had earlier said that the RBI would maintain a status quo on key rates as retail inflation continues to remain higher than its target of 4-6 per cent.
During his address, Shaktikanta Das exuded positivity about the current trajectory of economic recovery. Das said India is showing gradual improvement in growth and also added that consumer confidence is slowing turning upbeat.
Growth trajectory upbeat, but annual GDP to contract
Shaktikanta Das went on to added that India’s GDP may break out of contraction zone in Q4 of the current fiscal.
“Modest recovery in the 1st half of year could further strengthen in 2nd half; economic activity to gain traction in Q3, ” he said.
However, Das said that India’s annual GDP contraction for the current financial year will be over nine per cent. “For the year 2021, real GDP is expected to decline by 9.5% with risks tilted towards the downside,” he said.
He also said that the inflation will “remain elevated” in September but ease gradually towards the target over Q3 and Q4 of the current fiscal year.
“Our analysis also suggests that supply disruptions & associated margins and markups are the major factors driving up inflation,” Shaktikanta Das said.
Das highlighted several other measures that have been taken by the RBI to help banks tackle the current liquidity situation.
According to an RBI press release, the measures are intended to (i) enhance liquidity support for financial markets so as to revive activity in targeted sectors of the economy with linkages to other sectors; (ii) provide a boost to exports; (iii) regulatory support to improve the flow of credit to specific sectors within the ambit of the norms for credit discipline; (iv) deepen financial inclusion; and (v) facilitate ease of doing business by upgrading payment system services so as to improve customer satisfaction.
At the end of his address, the RBI governor said the economic situation is gradually improving but the “travails” are not over yet. He concluded by saying that the central bank will keep taking steady measures to ensure gradual economic recovery.
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