RBI monetary policy review: Interest rates on hold and other key takeaways
Last Updated: 8th December 2021 - 11:07 am
India’s central bank has kept the key lending rates unchanged for the ninth time in a row, as it kept its focus on reviving growth especially in the wake of the uncertainty caused by a new variant of the coronavirus.
At the end of the two-day bi-monthly review meeting of its apex Monetary Policy Committee (MPC), the Reserve Bank of India decided not to tinker with the repo rate, as it continues to maintain an “accommodative” stance.
The repo rate is the rate at which the RBI lends short-term funds to retail commercial banks, which, in turn, lend to end customers.
“The MPC decided to continue with the accommodative stance as long as necessary to revive and sustain growth on a durable basis and continue to mitigate the impact of COVID-19 on the economy, while ensuring that inflation remains within the target going forward,” the RBI said.
The policy review comes in the backdrop of the emergence of the Omicron variant of coronavirus that has caused concern in many countries across the globe and led to travel restrictions.
RBI policy highlights:
1) The repo rate remains at 4%.
2) The reverse repo rate is unchanged at 3.35%.
3) The Marginal Standing Facility rate is kept at 4.25%.
4) The RBI says that the overall projected rate of inflation for 2021-22 is 5.3%.
5) The real GDP growth estimate is 9.5% for 2021-22.
What has the RBI said on the state of the economy?
The RBI said that the real GDP growth is expected to be 6.6% in the third quarter and 6% in the fourth quarter of this fiscal year. The GDP growth for the first and the second quarters of the next year is projected at 17.2% and 7.8%, respectively.
RBI governor Shaktikanta Das said that the recent reduction in value-added tax on fuel by states should help spur consumption demand. Das said that government consumption, too, has been picking up since August, helping aggregate demand accelerate.
Das said that the cardinal principle behind the RBI’s policy remains price stability. He further said that the RBI will continue to manage liquidity in a bid to maintain financial stability.
“The persistence of CPI inflation excluding food and fuel since June 2020 is an area of policy concern in view of input cost pressures that could rapidly be transmitted to retail inflation as demand strengthens,” Das said.
The central bank said that the inflation trajectory, going forward, will be conditioned by a number of factors. The flare-up in vegetables prices due to heavy rains in October and November is likely to reverse with the winter arrivals.
The RBI also said that pro-active supply-side interventions by the government continue to restrain the pass-through of elevated international edible oil prices to domestic retail inflation. Crude prices have also seen a significant correction. However, cost-push pressures from high industrial raw material prices, transportation costs, and global logistics and supply chain bottlenecks continue to impinge on core inflation, the central bank said.
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