The Monetary Policy Committee of Reserve Bank of India (RBI) on Friday decided to leave benchmark interest rate unchanged at 4 per cent amid fears of inflation adding to the impact of the second wave of covid infections. This is the sixth time in a row that the panel headed by RBI Governor Shaktikanta Das has maintained status quo. MPC decided to maintain status quo, that is keeping benchmark repurchase (repo) rate at 4 per cent, Das said while announcing the bi-monthly monetary policy review on Friday.
The monetary panel will act to support growth by retaining its accommodative stance for as long as necessary, he added. Consequently, the reverse repo rate will also continue to earn 3.35 per cent for banks for their deposits kept with RBI. Das said MPC voted unanimously for keeping interest rate unchanged and decided to continue with its accommodative stance as long as necessary to support growth and keep inflation within the target. RBI had last revised its policy rate on May 22, 2020, in an off-policy cycle to perk up demand by cutting interest rate to a historic low.
The central bank lowered its estimate for economic growth to 9.5 per cent for the current fiscal from earlier projection of 10.5 per cent due to the impact of the second COVID wave. This is the first MPC meeting after official data showed that Indian economy contracted 7.3 per cent in the last fiscal, weighed down by nationwide lockdown that pummelled consumption and halted most economic activities. With regard to inflation, the governor said that retail inflation is likely to be 5.1 per cent during the current fiscal.
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MPC has been given the mandate to maintain annual inflation at 4 per cent until March 31, 2026, with an upper tolerance of 6 per cent and a lower tolerance of 2 per cent. but maintained an accommodative stance as the economy faces heat of the second COVID wave. On Monday, the Central bank had asked banks, NBFCs and payment system providers not to refer to its earlier virtual currencies-related circular, that was issued in April 2018 and later aside by the Supreme Court, in their communications to customers.
(with agency inputs)