RBI holds rates of interest; tasks GDP progress returning to constructive territory in present quarter

Mumbai, December 4

The Reserve Bank of India (RBI) on Friday left interest rates unchanged for a third straight meeting as inflation stayed stubbornly high, and said the economy was recuperating fast and would return to positive growth in the current quarter itself.

The benchmark repurchase rate will be maintained at 4 per cent, RBI Governor Shaktikanta Das said.

The six-member Monetary Policy Committee (MPC) retained its accommodative stance, signalling its intentions to cut interest rates whenever the situation eases.

A spike in consumer prices forced the RBI to pause after cutting rates by 115 basis points this year.

The central bank, which had previously expected the economy to shrink 9.5 per cent in the year to March, revised its forecast after a shallower-than-expected decline in the gross domestic product (GDP) in the July-September quarter.

Das said high frequency indicators pointed to a recovery gaining traction, with double digit growth in passenger vehicles and motorcycle sales, railway freight traffic, and electricity consumption in October.

The GDP, he said, would grow by 0.1 per cent in the October-December quarter and by 0.7 per cent in the following three months. Overall, the 2020-21 fiscal will end with a (-) 7.5 per cent de-growth.

The economy had contracted by a record 23.9 per cent in the April-June quarter and by 7.5 per cent in the following three months.

The two successive quarters of contraction pushed the economy into a technical recession. This is the first recession since quarterly records started in 1996.

The RBI had previously forecast a 5.6 per cent contraction in the quarter through December, followed by a return to growth in the three months to March.

Das said inflation continued to be sticky.

Headline retail inflation at 7.6 per cent in October was well above the upper end of the central bank’s 2-6 per cent target band. For H1 2021-22, the RBI projected a growth of 2.9 per cent to 6.5 per cent.

The RBI saw inflation in the fiscal third quarter at 6.8 per cent, and easing a bit to 5.8 per cent in January-March.

It is projected to be in the range of 5.2 to 4.6 per cent in the first half of the 2021-22 fiscal.

“Inflation is likely to remain elevated,” he said, adding that this constrains the monetary policy at the current juncture from using the space available to act in support of growth.

Stating that the RBI was ready to take further measures to ease liquidity, he said the central bank would use various instruments at the appropriate time to ensure ample liquidity is available in the system.

He also announced measures to deepen the corporate bond market and supervisory measures for the shadow banking sector.

The RBI raised the limit of contactless card transactions to Rs 5,000 per usage from the current Rs 2,000, with effect from January 1.

Also, real-time gross settlement systems (RTGS) would be available 24×7 in the next few days, he said.

“The MPC decided to continue with the accommodative stance as long as necessary – at least during the current financial year and into the next financial year – to revive growth on a durable basis and mitigate the impact of COVID-19 on the economy, while ensuring that inflation remains within the target going forward,” he said. PTI

Highlights of RBI’s monetary policy statement

*Benchmark rate kept unchanged for third time in a row at 4 pc

*Indian economy expected to contract 7.5 pc this fiscal, lower than 9.5 pc contraction projected in Oct

*Economy to clock growth of 0.1 pc in Q3; Q4 to see 0.7 pc growth 

*Retail inflation projected at 6.8 pc in Q3, 5.8 pc in Q4

*Inflation to remain elevated, barring transient relief in the winter months

*Fiscal stimulus moving beyond being supportive of consumption and liquidity to supporting growth-generating investment

*Private investment still slack and capacity utilisation has not fully recovered

*RBI to use various instruments at appropriate time to ensure ample liquidity is available in system

*RBI ready to take further measures to ease liquidity; will continue to respond to global uncertainty

*RBI to maintain accommodative monetary policy stance to support growth, keep inflation at targeted level

*To raise limit for contactless card transaction from Rs 2,000 to Rs 5,000 per transaction from January

*RTGS system to be made 24×7 in next few days

*Commercial, cooperative banks to retain profit made in 2019-20; not to make any dividend payment

*RBI committed to preserving depositors’ interest in the financial system. PTI

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