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RBI keeps repo rate unchanged at 4%; pegs GDP growth at 10.5%

By Priyanka Verma 
Updated Date

NEW DELHI: The Reserve Bank of India (RBI) on Wednesday decided to keep key lending rates unchanged for the fifth consecutive time in its April policy review meeting. While, it retained the gross domestic product (GDP) growth at 10.5 per cent.

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The six-member monetary policy committee (MPC), headed by governor Shaktikanta Das, retained repo rate at 4 per cent and reverse repo rate at 3.35 per cent.

The central bank also stuck to its accommodative stance amid concerns that rising Covid-19 infections could derail the country’s nascent economic recovery.

“The MPC judged that monetary policy should remain accommodative till prospects of sustained recovery are well secured,” RBI governor Shaktikanta Das said.

Repo rate is the rate at which the RBI lends to banks, while reverse repo rate is the rate at which it borrows from banks.

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The Marginal Standing Facility (MSF) rate and the bank rate remain also unchanged at 4.25 per cent.

The decision comes as a resurgence in cases has prompted many state governments to resume coronavirus restrictions this week, fueling concerns about economic activity. India reported 115,736 new coronavirus infections on Wednesday, its biggest single day rise so far.

The Reserve Bank mainly factors in the retail inflation while arriving at its bi-monthly monetary policy.

– < strong > GDP forecast retained

RBI retained the economic growth projection for the current financial year at 10.5 per cent, while cautioning that the recent surge in Covid-19 infections has created uncertainty over the economic growth recovery.

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In its last policy review, the RBI had projected a GDP growth rate of 10.5 per cent for FY’22.

Taking various factors into consideration, it said, “the projection of real GDP growth for 2021-22 is retained at 10.5 per cent consisting of 26.2 per cent in Q1, 8.3 per cent in Q2, 5.4 per cent in Q3 and 6.2 per cent in Q4.”

The RBI said that though the firms engaged in manufacturing, services and infrastructure sectors were optimistic about a pick-up in demand, “consumer confidence, on the other hand, has dipped with the recent surge in COVID infections in some states imparting uncertainty to the outlook.”

Retail inflation target

The MPC projected inflation edging up to 5.2 per cent in the first half of the new fiscal from 5 per cent in the January-March period and moderate to 4.4 per cent in Q3 of FY22.

The MPC projected inflation edging up to 5.2 per cent in the first half of the new fiscal from 5 per cent in the January-March period and moderate to 4.4 per cent in Q3 of FY22.

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Last month, the government had asked the central bank to maintain retail inflation at 4 per cent with a margin of 2 per cent on either side for another five-year period ending March 2026.

The annual retail inflation rate rose to 5.03 per cent in February, a three-month high due to the rise in fuel prices.

The MPC has kept the key benchmark rate unchanged since the last four reviews now. It 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 has cut policy rates by 115 basis points since February last year.

Bond buying programme

To provide clarity over its bond buying programme through Open Market Operations (OMO), Das announced Rs 1 lakh crore target for the first quarter under the new instrument called G-sec acquisition programme or G-SAP 1.0.

The first purchase of government securities for an aggregate amount of Rs 25,000 crore under G-SAP 1.0 will be conducted on April 15, 2021.

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He assured that RBI is committed to ensuring ample system liquidity in consonance with the accommodative stance of MPC.

“When I say ample liquidity, I mean a level of liquidity that would keep the system in surplus even after meeting the requirements of all financial market segments and the productive sectors of the economy,” he said.

‘Committed to preserve financial stability’

Shaktikanta Das said that the Reserve Bank will continue to do whatever it takes to preserve financial stability and to insulate domestic financial markets from global spillovers and the consequent volatility.

To provide additional liquidity to states, RBI has decided to accept the recommendations of an Advisory Committee constituted by it to review the Ways and Means Advance (WMA) limits for State Governments/UTs and other related issues.

Accordingly, it has been decided to enhance the aggregate WMA limit of states and UTs to Rs 47,010 crore, an increase of about 46 per cent from the current limit of Rs 32,225 crore which was fixed in February 2016.

“Further, it has also been decided to continue the enhanced interim WMA limit of Rs 51,560 crore granted by RBI due to the pandemic for a further period of six months i.e. up to September 30, 2021,” he said.

– < strong > Extending credit support

To nurture the still nascent growth impulses, the central bank felt necessary to support continued flow of credit to the real economy.

Accordingly, liquidity support of Rs 50,000 crore for fresh lending during 2021-22 will be provided to All India Financial Institutions (AIFIs).

He announced that Rs 25,000 crore will be provided to NABARD, Rs 10,000 crore to NHB and Rs 15,000 crore to SIDBI.

It is to be mentioned here that special refinance facilities of Rs 75,000 crore were provided to AIFIs during April-August 2020.

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