RBI keeps policy rates unchanged, GDP growth rate of 10.5%

The Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) voted unanimously to leave the policy repo rate unchanged at 4%, Governor Shaktikanta Das announced on Wednesday.

“It has also unanimously decided to continue with the adjustment stance as necessary to sustain growth on a sustainable basis and to minimize the impact of COVID-19 on the economy, while ensuring that Inflation further remains within the target, ”he said.

Thus, the Marginal Standing Facility (MSF) rate and the bank rate remain unchanged at 4.25% and the reverse repo rate at 3.35%.

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The governor said that in the domestic economy, the focus should now be on the spread of the virus as well as economic revival – strengthening the gains achieved so far and maintaining the impulses of growth in the new financial year (2021-22).

“A key aspect of this strategy will be to strengthen the basis of macroeconomic stability which has led to the revival of India from the epidemic. This will help the stakeholders to take efficient decisions to spend more time, which will improve the investment climate, ”he said.

“Public investment in key infrastructure sectors is a multiplier with historically proven ability to revive the macroeconomy by increasing capital stock and productivity and attracting private investment,” he said.

Optimism despite virus growth

Mr. Das said that the Reserve Bank is optimistic about the demand and expansion of business activities in the financial year 2021-22.

The governor said the juxtaposition of high-frequency leads and coincidence indicators suggests that economic activity is returning to normal despite an increase in transitions. “Rural demand remains a declining agricultural production and record in 2020-21, which is good for its resilience. Urban demand has gained traction and should be filled with the currently ongoing vaccination campaign, ”he said in the Governor’s statement.

He said that the recent increase in transition to COVID-19 increases uncertainty in the outlook for domestic development due to the tightening of restrictions by some state governments.

“In India, we are now better prepared to face the challenges posed by this revival in transition. The fiscal and monetary authorities are ready to act in a coordinated manner to limit their spillover to the economy at large and have an impact on the ongoing recovery, ”he said.

GDP growth

Taking into account various factors, the projection of real GDP growth for 2021–22 has been retained at 10.5%, ranging from 26.2% in Q1; 8.3% in Q2; 5.4% in Q3; And 6.2% in Q4, Mr. Das announced.

Inflation

The RBI governor said that in February 2021 the headline inflation of 5.0% remained within the tolerance band, with some underlying components testing the upper tolerance level.

Keeping various factors in mind, RBI has revised the projection of CPI inflation to 5.0% in Q4: 2020-21; 20% in Q1: 2021-22; 5.2% in Q2; 4.4% in Q3; And 5.1% in Q4, with roughly balanced exposure, he said.

G-Sec Acquisition

Drawing on its experience of the previous year, RBI has decided to have a secondary market G-sec acquisition program or G-SAP 1.0 for the year 2021-22, giving it a different character.

Under this program, RBI would commit to a specific amount of open market purchases of government securities with a view to enabling steady and gradual growth of the yield curve amidst comfortable liquidity conditions.

Mr. Das said, “The effort will be to ensure congenital financial conditions to gain traction.”

For Q1 of 2021-22, therefore, it has been decided to announce a G-SAP worth ₹ 1 lakh crore. He said that the first purchase of government securities totaling Rs 25,000 crore under G-SAP 1.0 would be done on April 15, 2021.

“The Reserve Bank will continue to do whatever it wants to do to maintain financial stability and to protect domestic financial markets from global spillovers and the resulting volatility,” he said.