RBI Keeps Policy Rate Unchanged at 4%, Lowers GDP Forecast to 9.5%

The central bank maintains status quo to accommodate the impact of the second Covid wave on the economy
RBI Keeps Policy Rate Unchanged at 4%, Lowers GDP Forecast to 9.5%
RBI Keeps Policy Rate Unchanged at 4%, Lowers GDP Forecast to 9.5%

The Reserve Bank of India (RBI) on Friday decided to leave the benchmark interest rate unchanged at 4 per cent and lowered its outlook for the economic growth to 9.5 per cent for the fiscal year 2021-22.

The central bank maintained an accommodative stance in its monetary policy review as the economy faces 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 status quo. The RBI had last revised its policy rate on May 22 last year in an off-policy cycle to perk up demand by cutting interest rate to a historic low.

The MPC has decided to maintain the stand, keeping the benchmark repurchase (repo) rate at 4 per cent, Das said while announcing the bi-monthly monetary policy review on Friday. Consequently, the reverse repo rate will also continue to earn 3.35 per cent for banks for their deposits kept with the RBI.

Das said the 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 on Friday lowered its estimate for economic growth from 10.5 per cent to 9.5 per cent for the current fiscal because of the pandemic.

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

The governor pegged the retail inflation at 5.1 per cent for the current fiscal. The MPC has been given the mandate to maintain the annual inflation at 4 per cent until March 31, 2026, with an upper tolerance of 6 per cent and a lower tolerance of 2 per cent.

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