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

The Reserve Bank of India (RBI) on Friday decided to leave the benchmark interest rate unchanged at 4% but maintained an accommodative stance as the economy faces the heat of the second COVID wave.

This is the sixth time in a row that the Monetary Policy Committee (MPC) headed by RBI Governor Shaktikanta Das has maintained the status quo. RBI had last revised its policy rate on May 22, 2020, in an off-policy cycle to perk up demand by cutting the interest rate to a historic low.

MPC decided to maintain the status quo, that is keeping the benchmark repurchase (repo) rate at 4%, Das said while announcing the bi-monthly monetary policy review on Friday.

Consequently, the reverse repo rate will also continue to earn 3.35 % for banks for their deposits kept with RBI.

Das said MPC voted unanimously for keeping the interest rate unchanged and decided to continue with its accommodative stance as long as necessary to support growth and keep inflation within the target.

The central bank lowered its estimate for economic growth to 9.5 % for the current fiscal from an earlier projection of 10.5% due to the impact of the second COVID wave.

This is the first MPC meeting after official data showed that the Indian economy contracted 7.3% in the last fiscal, weighed down by nationwide lockdown that pummelled consumption and halted most economic activities.

With regard to inflation, the governor said that retail inflation is likely to be 5.1% during the current fiscal.

MPC has been given the mandate to maintain annual inflation at 4% until March 31, 2026, with an upper tolerance of 6% and a lower tolerance of 2%.