The Reserve Bank of India (RBI) on Friday held key interest rates and maintained an accommodative stance amid uncertainty over the economic impact of the COVID-19 pandemic’s second wave.
What also comes as a shot in the arm for the ailing hospitality sector which has been severely impacted by COVID-19 is a Rs 15,000 Crore corpus for smooth liquidity management.
The announcement came after a three-day meeting of its Monetary Policy Committee (MPC). The RBI has kept repo rate — the central bank’s lending rate — unchanged at 4 per cent and reverse repo rate — borrowing rate — at 3.35 per cent.
— ReserveBankOfIndia (@RBI) June 4, 2021
Since most banks use repo rate as benchmark for their loans, a continuation of this low interest rate regime will help borrowers. With no hike in repo rate, new borrowers who are planning to take a home loan will get more time for their home buying process and can still avail loans at prevailing low rates.
The second COVID-19 wave has raised uncertainty around economic outlook and pushed potential policy normalisation further into the future.
The central bank has cut policy rates by 115 basis points since February 2020.
While the economy is slowly coming back on track, economists say the RBI does not want to derail the pace of growth by tweaking the rates or stance.
Economic growth has to be sustainable before the rates are raised at a time when inflation is rising.
KEY TAKEAWAYS OF RBI’S MONETARY POLICY
- Repo rate retained at 4% to help the economy battling for revival
- RBI’s borrowing rate or the reverse repo rate retained at 3.35%
- FY22 GDP forecast reduced to 9.5%
- MPC now sees CPI inflation at 5.1% in 2021-22; 5.2% in Q1, 5.4% in Q2, 4.7% in Q3 and 5.3% in Q4
- RBI to buy Rs 40,000 crore of government securities on June 17
- RBI to continue operation to ensure smooth liquidity management
- Rs 15,000 crore for the hospitality sector announced
- India’s forex reserves may have exceeded $600 billion
(With ANI inputs)