RBI keeps key policy rate unchanged; cuts growth forecast to 9.5%

The Reserve Bank of India (RBI) kept its key policy rates unchanged on Friday, for the sixth consecutive time and at record lows, as it continued with its “accommodative stance to revive and sustain growth on sustainable basis” amid the second wave of the coronavirus pandemic. “The Monetary Policy Committee (MPC) voted to maintain status quo ie repo rate remains unchanged at 4%. MCC also decided to continue with accommodative stance as long as necessary to revive and sustain growth on durable basis and to mitigate impact of Covid on economy,” RBI governor Shaktikanta Das said in Mumbai after MPC’s three-day meeting.

"The MPC was of the view that at this juncture policy support from all sides is required to gain the momentum of growth that was evident in the second half of 2021 and to nurture the recovery after it has taken root," Das said.

RBI also held the reverse repo rate, the borrowing rate, unchanged at 3.35 per cent, Das added. The central bank also 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 wave of the coronavirus pandemic. The Marginal Standing Facility (MSF) rate and bank rates were also kept unchanged at 4.25 per cent, he also said.

RBI has cut the repo rate, its key lending rate, by a total of 115 basis points (bps) since March 2020 to soften the blow from the coronavirus pandemic. MPC, which is the RBI’s rate-setting panel, began its three-day deliberations on the monetary policy on June 1.

The central bank 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 RBI’s annual report, released last month, said that “the conduct of monetary policy in 2021-22 would be guided by evolving macroeconomic conditions, with a bias to remain supportive of growth till it gains traction on a durable basis while ensuring that inflation remains within the target”.

The report added that the central bank would ensure that system-level liquidity remains comfortable during 2021-22 is alignment with the stance of monetary policy, and monetary transmission continues unimpeded while maintaining financial stability.

The Indian economy rose by 1.6% in the January-March quarter from the previous year but witnessed a contraction of 7.3% for the entire fiscal year, its worst in more than 40 years.