The Reserve Bank of India on Friday kept the repo rate unchanged at 4% and the reverse repo rate at 3.35%. This is the third time in a row that the central bank kept the key interest rates unchanged.
The repo rate is the rate at which the RBI lends to its clients generally against government securities. The reverse repo rate, on the other hand, allows banks to deposit funds with the central bank and earn interest on it.
The central bank also revised India’s real Gross Domestic Product growth projection for the year 2020-’21 from -9.5% to -7.5%. The RBI had predicted in its October assessment that the economy would contract by 9.5%. Das said that the recovery in rural demand was likely to become stronger and urban demand was also gaining momentum.
The decision not to change interest rates was made unanimously by the central bank’s Monetary Policy Committee. “MPC decided to continue with accommodative stands of monetary policy as long as necessary, at least till current financial year and into next year to revive growth on a durable basis and mitigate the impact of coronavirus while ensuring that inflation remains within the target,” RBI Governor Shaktikanta Das said.
Das said that elevated inflation constrained the possibility of cuts in interest rates at this point. He added that some relief could be expected in the winter. “The MPC is of the view that inflation is likely to remain elevated, barring transient relief in the winter months from prices of perishables,” Das was quoted as saying by Bloomberg.
He added that the Consumer Price Index Inflation for the third quarter of 2020-’21 is expected to be 6.8%. It is likely to reduce to 5.8% in the third quarter.
RBI also announced that the Real Time Gross Settlement or RTGS payment system will be available round-the-clock in the next few days. It currently operates from 7 am to 6 pm on all working days of in a week, except for the second and fourth Saturday every month.
India’s Gross Domestic Product growth rate contracted by 7.5% for the second quarter (July-September) of the current financial year, government data showed last week. With this, the country’s economy slipped into a technical recessionary phase for the first time ever – when its GDP growth is negative or declining for two consecutive quarters or more.
India’s economy had contracted by an unprecedented 23.9% in the first quarter (April-June) of this financial year, after being hit by the coronavirus pandemic and the subsequent economic slowdown.
In May, the Monetary Policy Committee had cut interest rates by 40 bps points to 4%, following an accommodative policy stance. Over the course of 2020, the committee has reduced the repo rate by 115 basis points.
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