Repo rate unchanged at 4%, projects GDP growth rate 10.5% in FY 22: RBI Governor

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Adopting a wait and watch approach, the Reserve Bank of India (RBI) retained its key short-term lending rates along with the growth-oriented accommodative stance during the final monetary policy review of FY21.

Accordingly, the Monetary Policy Committee (MPC) of the central bank voted to maintain the repo rate, or short-term lending rate, for commercial banks, at 4 per cent.

After the policy, repo rate (at which RBI lends to the banks) stands at 4 per cent, reverse repo rate (at which it takes money from banks) at 3.35 per cent, but the cash reserve ratio (CRR), or the amount of cash that banks required to maintain with the RBI at zero interest will be scaled back to 4 per cent in two phases.

Effective March 27, it will be raised to 3.5 per cent from 3 per cent now, and from May 22, the CRR will be normalised back to 4 per cent. The CRR was reduced by 1 percentage points last year in view of the Covid crisis, and was due to be rolled back in March this year.

Announcing the MPC decision on a virtual platform, RBI Governor Shaktikanta Das gave a stable near term outlook on inflation.

The inflation rate, he said is seen at 5.2 per cent in Q4FY21.

However, rising petroleum and raw materials costs was pointed out as a source of concern.

On the growth front, Das said the outlook has improved significantly with positive impulses becoming more broad-based. Besides, he mentioned the ongoing vaccination drive, expanding the number of normalising sectors and reviving consumer confidence. Additionally, he said the GDP growth has been projected at 10.5 per cent in FY22.

“The MPC notes that the sharp correction in food prices has improved the food price outlook, but some pressures persist, and core inflation remains elevated,” the monetary policy statement said.

“Pump prices of petrol and diesel have reached historical highs. An unwinding of taxes on petroleum products by both the centre and the states could ease the cost-push pressures. What is needed at this point is to create conditions that result in a durable disinflation. This is contingent also on proactive supply-side measures.”

Further, in a very interesting move, the RBI has proposed to allow retail investors to buy government bonds directly online through the facility called Reserve Bank (Retail Direct).

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