RBI keeps interest rate unchanged

On Friday, the Reserve Bank of India (RBI) is expected to keep interest rates unchanged at an all time high as it chose to support the economic recovery despite raising its inflation expectations.

The six members of the Monetary Policy Committee (MPC) unanimously voted to keep the primary repo rate – the policy rate at which the central bank lends short-term funds to banks – at 4 percent, but has been split on continue with the down position for longer.

“The MPC also decided on a 5-1 majority to maintain the accommodative stance for as long as needed to revive and support growth on a sustainable basis,” RBI Governor Shaktikanta Das said when announcing monetary policy.

It was a break with the past where they were unanimous on the need to support growth.

An accommodating position means that a rate hike is unlikely.

This is the seventh consecutive time that the RBI has left the key rate unchanged. The RBI last revised its key rate on May 22, 2020 in an off-policy cycle to stimulate demand by lowering the interest rate to a historically low level amid the onset of the COVID-19 pandemic.

Previously, the MPC had cut policy rates by 250 basis points since February 2019 to support growth.

With the second wave of COVID ebbing, RBI kept its GDP growth forecast for the current fiscal year ending March 2022 at 9.5%, but revised its retail sales inflation forecast to 5 , 7%, against 5.1% previously.

With projected inflation closer to the upper tolerance band, price pressures are unlikely to ease anytime soon despite the resumption of the monsoon and resumption of Kharif plantings.

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