Monetary Policy: RBI keeps repo rate unchanged at 4%, holds accommodative stance to sustain growth

RBI governor Shaktikanta Das said that the central bank decided to continue with the accommodative stance as long as necessary to sustain growth on a durable basis.

Apr 07, 2021 10:04 IST India Infoline News Service

Shaktikanta Das
The Monetary Policy Committee (MPC) unanimously voted to keep the policy repo rate unchanged at 4% in the first bi-monthly monetary policy for fiscal year FY22. Further, the six-member committee also decided to maintain an accommodative stance.

Likewise, the marginal standing facility (MSF) rate and the bank rate remain unchanged at 4.25% each. The reverse repo rate stands unchanged at 3.35%.

These decisions align to achieve the medium-term target for consumer price index (CPI) inflation of 4 per cent within a band of +/- 2% while supporting growth.

RBI governor Shaktikanta Das said that the central bank decided to continue with the accommodative stance as long as necessary to sustain growth on a durable basis and continue to mitigate the impact of COVID-19 on the economy while ensuring that inflation remains within the target going forward.

Giving rationale to the MPC's decision, Das said that since  its last meeting, headline inflation, after moderating close to the target rate in January 2021, firmed up to 5% in February 2021, primarily due to an adverse base effect.

Das said, "Looking ahead, the evolving CPI inflation trajectory is likely to be subjected to both upside and downside pressures. The bumper foodgrains production in 2020-21 should result in softening of cereal prices going forward. Mitigation of price pressures on key food items such as protein-based components and edible oils would also depend on supply-side measures and easing of international prices."

"The MPC noted that underlying inflation pressures emanate from high international commodity prices and logistics costs. The softening in crude prices seen in recent weeks, if it sustains, can assuage input cost pressures," Das added.

Meanwhile, talking about India's GDP growth ahead, Das said that the recent surge in infections has, however, imparted greater uncertainty to the outlook and needs to be closely watched, especially as localised and regional lockdowns could dampen the recent improvement in demand conditions and delay the return of normalcy.

He further said, "Against this backdrop, the MPC judged that monetary policy should remain accommodative to support and nurture the recovery. In other words, the stance of monetary policy will remain accommodative till the prospects of sustained recovery are well secured while closely monitoring the evolving outlook for inflation."

The National Statistical Office (NSO) has placed the contraction in real GDP at 8.% for 2020-21. 

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