RBI holds repo rate to boost growth, ignores inflation

RBI holds repo rate to boost growth, ignores inflation

The RBI revised its growth forecast to a negative 7.5% for FY21 from a negative 9.5% earlier with growth at 0.1% in Q3FY21 and 0.7% in Q4FY21.The RBI revised its growth forecast to a negative 7.5% for FY21 from a negative 9.5% earlier with growth at 0.1% in Q3FY21 and 0.7% in Q4FY21.

In a clear message it would nurture the nascent recovery and help the government complete its borrowing programme at affordable rates, the Reserve Bank of India (RBI) on Friday left key rates unchanged and stayed with its accommodative stance despite forecasting much higher inflation in the months ahead. The reassurance that liquidity would remain easy for the rest of the year and into 2021-22 brought cheer to the bond markets which had bracing for a slight change of stance.

RBi governor Shaktikanta Das said the MPC had decided to maintain status quo on the policy rate and continue with the accommodative stance as long as necessary – at least during the current financial year and into the next financial year – to revive growth on a durable basis and mitigate the impact of Covid-19 on the economy, while ensuring that inflation remains within the target going forward. The RBI revised its growth forecast to a negative 7.5% for FY21 from a negative 9.5% earlier with growth at 0.1% in Q3FY21 and 0.7% in Q4FY21.

Related News

Inflation is now expected to rise to 6.8% for Q3FY21, 5.8% for Q4FY21 and 4.6-5.2% in H1FY22, with risks broadly balanced. Michael D Patra, deputy governor, RBI, said, “At the current time, our assessment is that a large part of inflation is arising out of supply-side disruptions at the level of the retailer, very high margins being charged by retailers and some amount of indirect taxes. The element of demand, which you could call mischief, is still muted.”

Sonal Varma, chief economist, Nomura, said the RBI has continued to prioritise growth and assuaged market concerns of a sudden withdrawal of excess liquidity. However, Varma believes that despite the RBI’s commitment on both rates and liquidity, the central bank is increasingly uncomfortable with the sticky nature of inflation – because commodity price pressures have started to rise and demand is also expected to gradually recover – and the trade-off between excess liquidity and the monetary policy stance. “With the growth pickup in its infancy and pandemic-related risks still prevalent, we expect the RBI to keep rates on hold and maintain its accommodative forward guidance for the forseeable future,” Varma observed.

Do you know What is Cash Reserve Ratio (CRR), Finance Bill, Fiscal Policy in India, Expenditure Budget, Customs Duty? FE Knowledge Desk explains each of these and more in detail at Financial Express Explained. Also get Live BSE/NSE Stock Prices, latest NAV of Mutual Funds, Best equity funds, Top Gainers, Top Losers on Financial Express. Don’t forget to try our free Income Tax Calculator tool.

Financial Express is now on Telegram. Click here to join our channel and stay updated with the latest Biz news and updates.

Leave a Reply

Your email address will not be published. Required fields are marked *