Business / RBI keeps repo rate unchanged at 4% and reverse repo rate at 3.35%

New Delhi: The Reserve Bank of India is announcing the monetary policy outcome today. RBI Governor Shaktikanta Das will announce decisions on key rates after the panel concludes its three-day meeting on June 4.

RBI Governor Shaktikanta Das said that MSF rate and banking rate will also remain unchanged at 4.25 percent, reverse rate also unchanged at 3.35%

Repo Rate Unchanged

The RBI's Monetary Policy Committee (MPC) has decided to continue with an accommodative stance until necessary to mitigate the impact of COVID-19. The Marginal Standing Facility (MSF) rate and bank rates remain unchanged at 4.25 percent, says RBI Governor Shaktikanta Das. 

The RBI governor further said, "core price pressures may remain elevated. Consumer inflation pass-through may not be high due to tapered demand. The second wave has been highly transferable to rural and semi-urban areas. The impact on economic activity is expected to remain contained due to lower restrictions. Urban demand, in high frequency indicators, recorded sequential moderation in April-May 2021. Domestic monetary and financial conditions remain accomodative for economic recovery. Rebound in global trade is taking place. Global demand condition is expected to improve with fiscal stimulus and higher vaccination."

Monsoon To Revive Economy

The forecast of the southwest monsoon is expected to revive the domestic economic activity. The spread in infection in villages and dent in demand in urban areas are posing downside risks.

The central bank will maintain the accommodative stance as long as necessary to revive and sustain growth while maintaining inflation within the target going forward.

RBI governor said, "Considering all factors such as coronavirus pandemic, PMI data, companies adapted to pandemic working and expectation of normal monsoon, real GDP is seen at 9.5 percent in FY21-22. CPI inflation is seen at 5.1 percent FY21-22."

RBI MPC reduced FY22 GDP forecast to 9.5% from the earlier estimate of 10.5%. The Q1FY22 GDP forecast has been slashed to 18.5% from an earlier estimate of 26.2%, said RBI Governor Shaktikanta Das.

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

Retail Inflation predicted to be 5.1%

With regard to inflation, the governor said that retail inflation is likely to be 5.1 per cent during the current fiscal.

MPC has been given the mandate to maintain 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.

The RBI MPC began its three-day policy review on June 2 and Governor Shaktikanta Das said in the announcement today. The consensus among economists was that the central bank will retain its key rates in the face of the continuing uncertainty in the pandemic-hit economy and the announcement is the same as it was anticipated. The trend on both inflation and growth--the two key variables for policy formulation--largely remain the same as at the time of the last policy review.