Repo rate unchanged at 4%; real GDP growth to be negative this year: RBI

The central bank maintains status quo; no change in reverse repo rate, too

RBI cuts repo rate for fourth time; economists see more cuts to boost economy [File] RBI Governor Shaktikanta Das arrives for a press conference in Mumbai | AP

As widely predicted, the Reserve Bank of India (RBI) has kept the lending rates unchanged at 4 per cent. The reverse repo rate will also remain unchanged at 3.3 per cent and the central bank will continue with an accomodative  monetary policy, said RBI Governor Shaktikanta Das. 

The six-member Monetary Policy Committee (MPC), headed by the RBI Governor, announced its decisions on Thursday after its three-day meeting. With persisting inflationary pressures, it was widely expected that the RBI may refrain from cutting the benchmark lending rate.

The central bank governor cautioned that India's real GDP growth was likely to remain in the negative zone in the year ending March 2021. 

He added that headline inflation is likely to remain elevated in the second quarter, and then come off in the second half of the year. In addition, upside risks to food prices remain, he said, adding that high frequency indicators have levelled off.

The fast-changing macroeconomic environment and the deteriorating growth outlook necessitated off-cycle meetings of the MPC—first in March and then again in May 2020. The MPC has cumulatively cut the repo rate by 115 basis points over these two meetings, resulting in total policy rate reduction of 250 basis points since February 2019, with an aim to boost economic growth.

The central bank has been taking steps proactively to limit the damage to the economy caused by the pandemic and subsequent lockdowns. As per a research report by SBI, banks have cut rates on fresh loans by 72 basis points, the fastest transmission ever recorded.

The COVID-19 pandemic is hurting both businesses and consumers alike and the uncertainty around when things will normalise has led to muted demand and supply disruptions.

The government has tasked RBI to keep inflation at 4 per cent (+, - 2 per cent). The central bank mainly factors in the Consumer Price Index (CPI) while formulating the monetary policy. Higher prices of food items, especially meat, cereals and pulses, pushed the CPI-based retail inflation to 6.09 per cent in June. The inflation rate for July will be announced on August 12.

The monetary policy was in an accommodative mode even before the outbreak of COVID-19, with a cumulative repo rate cut of 135 basis points between February 2019 and the onset of the pandemic.

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