Sunday 9 May 2021
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RBI keeps repo rate unchanged at 4%, maintains accommodative stance

As predicted at the morning news podcast by Sirf News, the Reserve Bank of India (RBI) has kept repo rate unchanged at 4% while maintaining its stance ‘accommodative’. The central bank’s Governor Shaktikanta Das on 5 February announced its policy decision and said it was broadly in-line with the estimates, as economists were expecting the RBI to maintain status quo on key policy rates.

Consequently, the reverse repo, the rate at which RBI borrows money from banks, was kept unchanged at 3.35%. RBI had last reduced policy rates on 22 May last year. The central bank had slashed the repo rate by 115 basis points since late March 2020 to support growth.

Das said MPC or the rate-setting committee voted for keeping interest rate unchanged and decided to continue with its accommodative stance to support growth.

The RBI Governor in his address said that signs of recovery have strengthened further and list of normalising sectors is expanding. “Need of the hour is continue to support growth, return growth to higher trajectory,” he said.

RBI expects GDP growth for 2021-22 at 10.5%.

Das said the recent budget proposals and expenditure plans have raised hopes for a more robust recovery, and the bank stood ready to offer support and also ensure that the government’s heavy borrowing programme was absorbed smoothly by the market.

The governor said inflation has returned to a tolerance band of 4% while the government’s investment-oriented stimulus under Atmanirbhat Bharat begun to show results. 

The central bank revised its CPI projection to 5.2-5% in the first half of the next financial year as compared to 5.2-4.6% earlier. Das said GDP growth in the first half of FY22 is seen in the range of 8.3% to 26.2% while for the third quarter of FY22, growth is seen at 6%.

Reserve Bank of India said Cash Reserve Ratio (CRR), which was reduced to 3% for all banks due to the disruption caused by the Covid pandemic, will be restored back to 4% in two phases in a non-disruptive manner. First, CRR will be changed to 3.5% from 27 March 2021 and 4% from 22 May 2021.

Major announcements made by the central bank’s MPC:

1. The RBI decided to keep the benchmark repo rate unchanged at 4% till March end with an upper tolerance of 6% and lower tolerance of 2%. Consequently, the reverse repo rate also remained unchanged at 3.35%. This is the fourth time in a row that MPC decided to keep the policy rate unchanged.

2. The MPC decided to continue with an accommodative stance of monetary policy as long as necessary at least throughout the current financial year along with the consecutive year in order to “revive growth on a durable basis and mitigate the impact of the coronavirus (Covid-19) disease pandemic.”

3. The GDP growth rate was projected at 10.5% for the financial year 2021-2022 by the RBI. Das added the economy would rebound to 10.5% in the next financial year.

4. The RBI announced that the retail inflation rate would come down to 5.2% in the current quarter and further decline to 4.3% by the third quarter of the next fiscal. “The Centre will be reviewing the inflation target by March-end,” Das added.

Publishing partner: Uprising

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