The Reserve Bank of India (RBI) on Thursday kept the benchmark interest rate unchanged at 4 per cent and decided to continue with its accommodative stance in an earnest attempt to boost growth.
Worth mentioning here is that this is the 10th time in a row that the Monetary Policy Committee (MPC) headed by RBI Governor Shaktikanta Das has maintained the status quo. In May 2020, the central bank last revised its policy repo rate or the short-term lending rate in an off-policy cycle to bolster demand by cutting the interest rate to a historic low.
Das said the MPC unanimously voted for keeping interest rate unchanged and decided to continue with its accommodative stance as long as necessary to boost growth and keep inflation within the target. This is the first MPC meeting after presentation of the Budget 2022 in Parliament on February 1.
The reverse repo rate has been left unchanged at 3.35%. However, it was widely expected that the apex bank would raise the reverse repo rate by 15-40 basis points (bps).
“Overall taking into consideration the outlook for inflation and growth, in particular the comfort provided by improving inflation outlook, the uncertainties related to omicron and global spillovers, the MPC was of the view that continued policy support is warranted for a durable and broad-based recovery,” the RBI chief said.
Adhil Shetty, CEO, BankBazaar.com, said: “It’s almost two years since the repo rate was paused. The wide expectation has been that rates will start rising due to inflationary pressures. That has not happened for now. In fact, the Governor’s statement suggests inflation will continue to be under control. This broadly means that interest rates on fixed deposit and loans are not going to spike for now, barring small adjustments here and there.”
“Debt funds should continue to perform stably for now, with short-duration funds appearing to be the safer bet,” he added.
RBI retained its growth projection at 9.2 per cent and inflation at 5.3 per cent for the current financial year. Consumer price index-based retail inflation rose to a five-month high of 5.59% in December from a year earlier, while wholesale price-based inflation, eased marginally to 13.56%, but remained in double-digits for nine straight months.
Das said that the CPI inflation trajectory has moved in close alignment with the bank’s projections. In particular, the softening of food prices is providing welcome relief. The improving prospects for foodgrains production and the expected easing of vegetable prices on fresh winter crop arrivals are adding further optimism.
“Going forward, government’s thrust on capital expenditure and exports are expected to enhance productive capacity and strengthen aggregate demand. This would also crowd in private investment. The conducive financial conditions engendered by the RBI’s policy actions will provide impetus to investment activity,” the RBI governor said.
Many express are of the view that India is the hardest-hit emerging economies from disruptions caused by the Covid-19 pandemic, and it is showing signs of recovery, at present. More importantly, the Union Budget 2022-23 was modestly stimulative compared with expectations.
The RBI has rescheduled its MPC meeting, delaying it by a day to February 8-10, it said in a statement on last week, citing a public holiday in Maharashtra to mourn the death of legendary singer Lata Mangeshkar.
