Keeps interest rates unchanged
THE Reserve Bank of India (RBI) on Friday left key interest rates unchanged at record lows and announced new measures to support the economy after the nascent recovery was pummelled by the devastating second wave of COVID-19 infections.
It brought down its forecast for economic growth by 100 basis points to a 9.5 per cent real GDP growth in the current fiscal year ending March 31, 2022, while the inflation forecast was bumped up by 10 bps to 5.1 per cent.
The six-member monetary policy committee (MPC) headed by Governor Shaktikanta Das voted unanimously for keeping repo rate - RBI’s key lending rate - unchanged at 4 per cent, and the reverse repo rate - the borrowing rate - at 3.35 per cent.
“The MPC was of the view that at this juncture policy support from all sides is required to gain the momentum of growth that was evident in the second half of 2021, and to nurture the recovery after it has taken root,” Das said. It decided to retain an accommodative policy stance “as long as necessary to revive and sustain growth on a durable basis and continue to mitigate the impact of COVID-19 on the economy,” signaling there is still room to cut rates further.
RBI expanded its version of quantitative easing to keep borrowing costs anchored. It will buy an additional Rs 1.2 lakh crore of bonds under the Government Securities Acquisition Programme (G-SAP) 2.0 in the second quarter.
In April, RBI committed to
buying Rs 1 lakh crore worth of Government bonds from the market between April and May under G-SAP 1.0. Under G-SAP 1.0, RBI will purchase government securities worth Rs 40,000 crore on June 17.
The move is aimed at supporting the Government’s borrowing plan at comfortable interest rates.
The speed, scale and severity of the second wave of COVID-19 has impacted the economic recovery. But Das said unlike the first wave of COVID-19 infections which brought the economy to an abrupt standstill under a nationwide lockdown, the impact of the second wave on economic activity is expected to be relatively contained with restrictions on mobility being regionalised and nuanced.
He said retail inflation is seen at 5.1 per cent in 2021-22, with upside risks from higher commodity prices and re-emergence of higher supply constraints amidst the current phase of lockdowns.
Other announcements include a separate liquidity window of Rs 15,000 crore being opened till March 31, 2022, with tenors of up to 3 years at the repo rate, under which banks can provide fresh lending support to COVID-hit sectors such as hotels, restaurants and tourism.
Further, an additional Rs 16,000 crore funding has been earmarked for Small Industries Development Bank of India (SIDBI) for lending to Micro, Small & Medium Enterprises (MSMEs), directly or indirectly over and above the quantum of Rs 50,000 crore that was set aside for government financial institutions in the April policy.