RBI Keeps Lending Rate At 4%, Projects Real GDP Growth This Year At 9.5%

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The Reserve Bank has slashed its key lending rates i.e. repo rate by 115 basis points since March 2020

Highlights

  • The RBI kept repo rate at four per cent and reverse repo at 3.35 per cent
  • The RBI trimmed real GDP growth projection for FY2022 to 9.5 per cent
  • RBI had last cut its policy rates on May 22, 2020, in an off-policy cycle

The Reserve Bank of India (RBI) has kept the benchmark rates unchanged and “decided to continue with its accommodative stance as long as necessary to support growth and keep inflation within the target” at a time when the country is battling against the second wave of the pandemic.The central bank has kept the repo rates – the key interest rates at which it lends money to commercial banks – steady at four per cent and the reverse repo rate – the rate at which RBI borrows money from banks, unchanged at 3.35 per cent, the RBI Governor Shaktikanta Das said at the end of the three-day Monetary Policy Committee (MPC) meeting that started on Wednesday.

  1. The central bank has also projected real GDP growth of 9.5 per cent for this financial year, which is lower compared to the earlier estimate of 10.5 per cent due to the impact of the second Covid wave. 

  2. As per the gross domestic product (GDP) estimates government released earlier this week, the economy contracted by 7.3 per cent in financial year 2020-21, while the agriculture sector witnessed a growth of 3.6 per cent, and the services and industry sectors contracted by 8.4 per cent and seven per cent respectively.

  3. Mr Das however expressed confidence that resilience of the agricultural sector, forecast of normal monsoon and the gathering global economic momentum will help the domestic economy as the second wave of the pandemic tapers off.

  4. On Thursday, the Chief Economic Advisor KV Subramanian had also expressed the view that economic recovery would take place next month as states have started removing restrictions and the vaccination drive is likely to speed up, going ahead.

  5. The Monetary Policy Committee (MPC) has kept the key benchmark rates unchanged in the past five monetary policy meets. The central bank had last cut its policy rates on May 22, 2020, in an off-policy cycle when the covid-19 pandemic first shook the country.

  6. The Reserve Bank has slashed its key lending rates i.e. repo rate by 115 basis points since March 2020 to cushion the economy from the aftershock of coronavirus.

  7. Many economists believe that the worse may be over as cautious unlocking has started in many states amid initial signs that the second Covid curve may have tapered.

  8. The retail inflation has also eased to a three-month low of 4.29 per cent on the account of reduction in food prices such as vegetables and cereals, according to government data.

  9. The RBI in its bi-monthly monetary policy review in April 2021 targeted the retail inflation at 5.2 per cent in the first half of the current fiscal 2021-22 and within the two – six per cent band in the medium term.

  10. RBI Governor also said that the central bank will open a special liquidity window of Rs 15,000 crore till March 30, 2022, with tenors of up to three years at the repo rate.



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