RBI Retains Policy Rates, Accommodative Stance
Moneylife Digital Team 04 June 2021
The monetary policy committee (MPC) of Reserve Bank of India (RBI) on Friday retained its key short-term lending rates along with the growth-oriented accommodative stance during the second monetary policy review of FY21-22. The RBI governor also announced additional measures in wake of the COVID pandemic
 
With today's announcement, the repo rate remains unchanged at 4% and reverse repo rate remains at 3.35%, while marginal standing facility rate and bank rate also remain static at 4.25%. 
 
In his address, Shaktikanta Das, governor, RBI, says, "The MPC adopted the view that policy support from all sides is required to gain growth momentum and to nurture recovery after it takes root. Hence policy rate has been left unchanged and accommodative stance has been decided to be continued if necessary to revive and sustain growth, to mitigate impact of COVID on economy, and to ensure inflation remains within target."
 
Unlike the first COVID wave, Mr Das says, the impact on economic activity due to second wave is expected to be relatively contained, with restrictions on mobility being nuanced and regionalised.
 
"On balance, the MPC was of the view that at this juncture, policy support from all sides is required to regain the momentum of growth that was evident in second half (H2) of FY20-21 and to nurture the recovery after it has taken root," Mr Das says in his post-policy statement.

As of now, India suffers from a massive spike in COVID infections. Consequently, the situation has forced state governments to implement local lock-downs and travel restrictions which have started to slowdown economic activity.

This trend has impacted economic activity. Accordingly, RBI revised India's FY21-22 growth estimates to 9.5% from 10.5%.

RBI pointed out that expected healthy rural demand on the back of a normal monsoon and pick up in exports should act as a tailwind for the country's growth.

Besides, the governor says vaccination process should help to normalise economic activity.

Furthermore, RBI called upon Union government to give a policy push for exports.

"The need of the hour is for enhanced and targeted policy support for exports. It is opportune now to give further policy push by focusing on quality and scalability," the governor says in his post -policy statement.

Additionally, RBI pegged retail inflation for FY21-22, the consumer price index (CPI)-based inflation at 5.1%.

The announcement, though largely factored in by investors, evoked a lukewarm response at the stocks market.
 
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