The Monetary Policy Committee (MPC) of the Reserve Bank of India on Friday decided to keep repo rate unchanged at 4 per cent. The reverse repo rate stays at 3.35 per cent.
The RBI last changed policy rate on May 22. This is the third time in a row that the central bank has decided to maintain status quo.
The decision comes in the backdrop of the September quarter Q2 GDP turning out to be better than RBI's earlier projections. GDP contracted by 7.5 per cent in the July-September quarter, lower than the central bank’s prediction of 8.6 per cent.
Experts had earlier indicated that the stubborn retail inflation, which remained above the comfort level of the RBI of around 4 per cent, will refrain the central bank from reducing the interest rate.
The central bank has been dealing with the challenges of striking a balance between the increased and continuous requirement of high liquidity, and taming retail inflation. The three-day RBI bi-monthly policy was going on since Wednesday and the outcome of the six-member MPC was issued by the Governor.
In its October monetary policy statement, the RBI had said the real GDP growth in 2020-21 was expected to be negative at (-)9.5 per cent, with risks tilted to the downside: (-)9.8 per cent in Q2 2020-21; (-)5.6 per cent in Q3; and 0.5 per cent in Q4.
According to the Finance Ministry's Monthly Economic Review, the year-on-year GDP contraction of 7.5 per cent in Q2 of 2020-21 underlies a quarter-on-quarter surge in GDP growth of 23 per cent. This V-shaped recovery, evident at the half-way stage of 2020-21, reflects the resilience and robustness of the Indian economy.
A report by Yes Bank said though India has officially entered into a technical recession with second-quarter GDP print, "we believe that we are past the nadir in India's growth trajectory. The sharper than expected recovery in key economic indicators is suggestive of this view".
Assocham Secretary General Deepak Sood had said that the RBI has done a commendable job in handling the situation arising out of the Covid-19 pandemic. It has reached out to a number of sectors like mutual funds, realty, NBFCs, and MSMEs, besides the all-encompassing moratorium on loan repayments. "In our assessment, the current inflation should be a temporary phenomenon and would ease as supply disruptions resulting from Covid-19 related restrictions are getting resolved," Sood said.
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