RBI leaves Repo Rate unchanged at 4%

The Reserve Bank of India (RBI) on Friday kept repo rate unchanged while maintaining its stance ‘accommodative’.

RBI Governor Shaktikanta Das said that the repo rate was kept unchanged at 4 percent and the reverse repo rate at 3.35 percent.

He said that It also unanimously decided to continue with the accommodative stance of monetary policy as long as necessary – at least through the current financial year and into the next year – to revive growth on a durable basis and mitigate the impact of COVID-19, while ensuring that inflation remains within the target going forward. The Marginal Standing Facility (MSF) rate and the Bank rate remain unchanged at 4.25 per cent. The reverse repo rate stands unchanged at 3.35 per cent.  

The governor said, “While the year 2020 tested our capabilities and endurance, 2021 is setting the stage for a new economic era in the course of our history.”

RBI also sees GDP growth for 2021-22 at 10.5%.

“Importantly, signs of recovery have strengthened further since the last meeting of the MPC. High frequency coincident and proximate indicators suggest that the list of normalising sectors is expanding. The RBI’s survey points towards improvement in capacity utilisation in the manufacturing sector to 63.3 percent in Q2:2020-21 from 47.3 percent in the preceding quarter. Consumer confidence is reviving, and business expectations of manufacturing, services and infrastructure remain upbeat. The movement of goods and people and domestic trading activity are growing at a robust pace,” the governor said.

The Union Budget 2021-22 has provided a strong impetus for revival of sectors such as health and well-being, infrastructure, innovation and research, among others. This will have a cascading multiplier effect going forward, particularly in improving the investment climate and reinvigorating domestic demand, income and employment, he said.

“After breaching the upper tolerance threshold continuously since June 2020, CPI inflation moved below 6 per cent in December for the first time in the post lockdown period, supported by favourable base effects and a sharp fall in key vegetable prices, the latter accounting for around 90 per cent of the decline in headline inflation during November and December,” he said.

The projection for CPI inflation has been revised to 5.2 per cent for Q4:2020-21, 5.2 per cent to 5.0 per cent in H1:2021-22 and 4.3 per cent for Q3:2021-22, with risks broadly balanced.

The Governor said, “the Indian economy is poised to move in only one direction and that is upwards. It is our strong conviction, backed by forecasts, that in 2021-22, we would undo the damage that COVID-19 has inflicted on the economy. After the chaos and despair of the year gone by, through which we have sailed together and shall continue to sail ahead, the overall situation can be best described in the words of Mahatma Gandhi, “We are daily witnessing the phenomenon of the impossible of yesterday becoming the possible of today.…”