The Reserve Bank of India monetary policy committee left interest rates unchanged as expected on Friday after data showed the economy is contracting less than expected amid softening prices.
RBI’s first monetary policy committee, which met for the first after the Union Budget 2021, decided to retain an accommodative policy stance at least for the current financial year and into the next to revive growth as inflation has eased below “tolerance level of 6 percent”.
The key lending rate of the RBI, or the repo rate, was left undisturbed at 4 percent while the reverse repo rate, or the key borrowing rate, was retained at 4 percent.
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In December 2020, retail inflation fell 4.59 percent as against 6.93 percent in November.
RBI’s repo rate, or interest rates as it’s generally called, currently stands at 4 percent. The rates haven’t been changed since May 22, 2020 when COVID-19’s unprecedented challenged forced the RBI to take measures in support of the economy. Since February 2020, the MPC has cut repo rate by 115 basis points.
Experts too believed that RBI will not tinker with interest rates in this policy.
Aditi Nayar, Principal Economist at ICRA, expected the interest rates to remain unchanged in today’s policy. Sunil Kumar Sinha, Principal Economist and Director of Public Finance, India Ratings and Research, too, expected the same.
Upasna Bhardwaj, Senior Economist at Kotak Mahindra Bank, said that the RBI would draw comfort with the recent moderation in headline inflation, which would keep it accommodative mode for now, complementing the pro-growth intention of the government.
The current repo rate, or the rate at which the RBI lends to banks, is 4 percent. The central bank last revised its policy rate on May 22 when COVID-19 posed an unprecedented challenge, hammering the economy. The central bank has cut policy rates by 115 basis points since February 2020.
