The Economic Times daily newspaper is available online now.

    RBI policy: MPC leaves repo rate unchanged, keeps accommodative stance

    Synopsis

    Economists had expected the MPC to stand pat on policy rate as well as on growth projections for this financial year.

    rbiAgencies
    The rate-setting panel also decided to stick with its “accommodative” monetary policy stance for “as long as necessary”.
    MUMBAI: The Monetary Policy Committee of the Reserve Bank of India (RBI) on Wednesday left the repo rate unchanged at 4 per cent and kept the reverse repo rate at 3.35 per cent in a unanimous vote. The decision comes in the backdrop of a second wave of COVID-19 infections that has raised concerns over economic recovery.

    Economists had expected the MPC to stand pat on policy rate as well as on growth projections for this financial year. The rate-setting panel also decided to stick with its “accommodative” monetary policy stance for “as long as necessary”.

    The panel reiterated that its “accommodative” stance will remain till growth revives “on a durable basis” and till the impact of COVID-19 on the economy is mitigated, while ensuring that inflation remains within the target going forward.

    The MPC also decided to stick to its February projection of the economy growing at 10.5 per cent in real terms in 2021-22 despite the rising risk to the economic recovery from renewed localised lockdowns across the country.

    The backdrop of the MPC’s meeting could not have been starker to the one held in February as the country is grappling with record daily increase in COVID-19 infections and return of localised lockdowns.

    On Sunday, Maharashtra became the first major state to announce COVID-19 restrictions such as curfews, work-from-home order for the private sector and weekend lockdowns. The country’s richest state contributed nearly 14-15 per cent to overall GDP.

    In Delhi and Gujarat, local authorities have announced night curfews to stem the spread of the virus raising concerns that sectors that were worst hit by the national lockdown in 2020 may see even greater pain this time around.

    Lockdown to dampen demand
    The RBI though agreed that focus must be on containing the spread of Covid, but warned lockdown imposed in parts of the country could dampen demand conditions and delay economic recovery.

    “Firms are optimistic about demand and pick-up in activity. Rural demand remains buoyant, and record production bodes well. (But) recent Covid spike adds uncertainty to growth outlook, however, fiscal and monetary authorities stand ready to act together to limit spillover effects,” said RBI Governor Shaktikanta Das.

    The MPC retained the projection of real GDP growth at 10.5 per cent for FY22 but added that the rise in commodity prices and heightened market volatility accentuate downside risks.

    RBI bats for petro-tax cut
    The MPC said inflation is likely to be 5.2 per cent in Q1 and Q2 of FY22 The same will be 4.4 per cent in Q3 and 5.1 per cent in Q4. Trend inflation has moderated during the flexible inflation targeting regime, it added.

    However, the central bank believes some respite on inflation could be given if taxes on petroleum products are cut. “Respite on fuel tax could provide relief on the inflation front,” said Das.

    Taxes on petrol and diesel constitute nearly two-thirds of the retail prices. Recently, the prices of petrol hit Rs 100 in many parts of the country as crude oil prices rose in the international market.

    Monetary policy in the next five years will aim at building and consolidating gains of a flexible inflation targeting regime, Das added.

    Rs 1 lakh crore OMO in Q1
    Bowing to the demand of the market, RBI finally committed to announcing a timeline of open market operations (OMOs). An OMO calendar has been a longstanding demand from bond market traders.

    Have decided to put in place a secondary market G-Sec acquisition program. Will commit upfront to a specific amount of OMOs to enable steady evolution of yield curve,” said Das in his statement.

    The central bank said it will conduct OMO of Rs 1 lakh crore in the first quarter of the current financial year under the secondary market G-Sec acquisition program.

    “Will also continue to deploy other liquidity management tools to ensure financial conditions are supportive for all stakeholders. Endeavour is to ensure orderly evolution of yield curve, governed by fundamentals and to askew any specific level,” said Das.

    He assured that RBI will continue to do whatever it takes to maintain financial stability and urged market participants to see RBI communication in a “balanced” manner.

    RBI and bond market traders have battled in recent weeks over yields on long term bonds. Government bonds went unsold in a couple of auctions conducted in the last two months as RBI failed to find buyers at reasonable rates.



    (What's moving Sensex and Nifty Track latest market news, stock tips, Budget 2024 and expert advice, on ETMarkets. Also, ETMarkets.com is now on Telegram. For fastest news alerts on financial markets, investment strategies and stocks alerts, subscribe to our Telegram feeds .)

    Subscribe to The Economic Times Prime and read the Economic Times ePaper Online.and Sensex Today.

    Top Trending Stocks: SBI Share Price, Axis Bank Share Price, HDFC Bank Share Price, Infosys Share Price, Wipro Share Price, NTPC Share Price

    ...more


    (What's moving Sensex and Nifty Track latest market news, stock tips, Budget 2024 and expert advice, on ETMarkets. Also, ETMarkets.com is now on Telegram. For fastest news alerts on financial markets, investment strategies and stocks alerts, subscribe to our Telegram feeds .)

    Subscribe to The Economic Times Prime and read the Economic Times ePaper Online.and Sensex Today.

    Top Trending Stocks: SBI Share Price, Axis Bank Share Price, HDFC Bank Share Price, Infosys Share Price, Wipro Share Price, NTPC Share Price

    ...more
    The Economic Times

    Stories you might be interested in