RBI Continued the Wait And Watch Policy in 9th Consecutive Time
In its bi-monthly policy review, the central bank decided to keep the repo rate unchanged at 4 per cent. The repo rate is the interest rate at which the RBI lends short-term funds to banks.
Amid the exponential growth of hue and cry due to a new strain of coronavirus on the economy the Reserve Bank of India (RBI) stuck to its “wait and watch” policy keeping the key lending rates unchanged for the ninth consecutive time.
In its bi-monthly policy review, the central bank decided to keep the repo rate unchanged at 4 per cent. The repo rate is the interest rate at which the RBI lends short-term funds to banks. The reverse repo rate, the interest rate at which the RBI borrows from banks, is kept unchanged at 3.35 per cent. The Marginal Standing Facility (MSF) rate is also kept unchanged at 4.25 per cent.
According to RBI Governor Shaktikanta Das, the central bank’s Monetary Policy Committee has unanimously decided to maintain the status quo on policy repo rate by a majority of 5 to 1 to retain the “accommodative policy stance”. The Monetary Policy Committee (MPC) met on the 6th, 7th and 8th of this month to decide on the bi-monthly policy review.
“Consequently, the policy repo rate remains unchanged at 4 per cent, and the stance remains accommodative 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 while ensuring that inflation remains within the target going forward,” Das said.
The RBI has maintained a status quo on these key policy rates for the past one-and-a-half year. The last time the RBI changed the policy rate was in May 2020. The central bank had slashed the key policy rates in May 2020 to historic lows to support the economy hit by the COVID-19 pandemic.
Elaborating on the rationale for maintaining status quo on the policy rate and the ‘accommodative stance’, Das said: “economic activity is broadly evolving in line with its assessment in October, the MPC was of the view that the sharp and sustained reduction in new COVID-19 infections and the rise in vaccination coverage are contributing to consumer confidence and business optimism. The prospects for economic activity are steadily improving, including for contact-intensive services that were hit hard by the pandemic.”
On inflation, the MPC noted the supply-side measures taken by the government to contain food prices as also the calibrated reductions in central excise duties and state Value Added Taxes (VAT) on petrol and diesel. Crude oil prices have also softened since end-November. These would alleviate, to an extent, the domestic cost-push build-up.
COVID-19 pandemic has dominated the RBI policy stand in the past one-and-a-half year. “The MPC regarded the accentuation of headwinds emanating from global developments as the main risk to the domestic outlook, which is now somewhat clouded by the Omicron variant of COVID-19,” the RBI Governor noted in his statement after the release of the bi-monthly policy review.
“Moreover, given the slack in the economy and the ongoing catching-up of activity, especially of private consumption, which is still below its pre-pandemic levels, continued policy support is warranted for a durable and broad-based recovery. Against this backdrop, the MPC decided to retain the prevailing repo rate at 4 per cent and continue with the accommodative stance,” he added.