Concerned over elevated inflation, Reserve Bank of India on Friday decided to leave the benchmark interest rate unchanged at 4 per cent but maintained an accommodative stance, implying more rate cuts in the future if need arises to support the economy hit by the Covid-19 pandemic.
The benchmark repurchase (repo) rate has been left unchanged at 4 per cent, Governor Shaktikanta Das said while announcing the decisions taken by the central bank's Monetary Policy Committee (MPC).
Consequently, the reverse repo rate will also continue to earn 3.35 per cent for banks for their deposits kept with Reserve Bank of India (RBI).
He said the MPC voted for keeping interest rate unchanged and continued with its accommodative stance to support growth.
The central bank had slashed the repo rate by 115 basis points since late March to support growth.
RBI had last revised its policy rate on May 22, in an off-policy cycle to perk up demand by cutting interest rate to a historic low.
The 26th meeting of the rate-setting MPC with three external members -- Ashima Goyal, Jayanth R Varma and Shashanka Bhide -- began on December 2. This is the second meeting of these members who are appointed for a term of four years.
The government moved the interest rate setting role from the RBI governor to the six-member MPC in 2016. Half of the panel, headed by the governor, is made up of external independent members.
The MPC has been given the mandate to maintain annual inflation at 4 per cent until March 31, 2021, with an upper tolerance of 6 per cent and a lower tolerance of 2 per cent.
Here are the highlights what RBI governor Das said at a press conference soon after:
- RBI maintains status quo third time in a row; keeps benchmark lending rate unchanged at 4 pc.
- RBI to maintain accommodative monetary policy stance to support growth, keep inflation at targeted level.
- Committed to preserve depositors' interest in financial system.
- Financial markets are working in orderly fashion.
- Nascent signs of economic recovery in Q2 of current fiscal.
- RBI ready to take further measures to ease liquidity; will continue to respond to global uncertainty.
- Will use various instruments at appropriate time to ensure ample liquidity is available in system.
- Core inflation remains sticky; CPI inflation projected at 6.8 pc in Q3, 5.8 pc in Q4.
- Economy recuperating faster with more sectors joining recovery path.
- Commercial, cooperative banks to retain profit made in 2019-20; not to make any dividend payment.
- GDP growth to turn positive in Q3 with 0.1 pc expansion; Q4 to see 0.7 pc growth; FY21 growth at -7.5 pc.
- RTGS system to be made 24X7 in next few day.
- Limit for contactless card transaction to be raised from Rs 2,000 to Rs 5,000 per transaction from January.