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RBI leaves repo rate unchanged at 4%

RBI has kept the reverse repo rate unchanged at 3.35 percent

April 07, 2021 / 10:41 AM IST
RBI has left the repo rate unchanged and maintained the status quo.

RBI has left the repo rate unchanged and maintained the status quo.

The monetary policy committee (MPC), on April 7, retained the key policy rates unchanged indicating that a status-quo will be desirable at this juncture when the growth-inflation scenario remains uncertain.

The rate-setting panel also cautioned about the threats emerging from a persisting high inflation and suggested that it will await more data for a clearer trend. The MPC also indicated that growth recovery is at a nascent stage but sounded optimistic of growth revival this year.

The RBI retained the repo rate, at which it lends short-term funds to banks, at 4 percent. The reverse repo rate stands at 3.35 percent. The MPC has been a cautious mode since the start of COVID-19 in 2020 and has largely remained on status-quo throughout citing uncertainty in macro-economic trends.

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The MPC has cut the key lending rate, repo, by 250 bps since February 2019. The Consumer Price Index (CPI) or retail inflation rate for the month of February 2021 surged to 5.03 percent, the Ministry of Statistics and Programme Implementation (MoSPI) said on March 12 triggered by rise in food inflation and fuel.

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This is how key policy rates have moved since COVID-19 This is how key policy rates have moved since COVID-19

The growth scenario remains weak. The Index of Industrial Production (IIP) contracted by 1.6 percent in the month of January, as per the data released by MoSPI. Similarly, the manufacturing PMI fell to seven months low in March. According to the monthly IHS Markit India Manufacturing Purchasing Managers’ Index (PMI) survey released on April 5, manufacturing PMI stood at a seven-month low of 55.4 in March, down from 57.5 in February. In PMI parlance, a print above 50 means expansion, while a score below that denotes contraction.

The MPC's primary mandate is to keep inflation within the prescribed limits and fix policy rates accordingly. The MPC, set up in 2016, has been given a freehand on the inflation targeting for the next five years at 4 percent with 2 percent deviation on either side.

In the minutes of the last MPC meeting, the members had clearly indicated that the focus of the panel largely continues to be on the same page with respect to the urgent need to support a faltering economy hit hard by the COVID-19 pandemic.
Moneycontrol News
first published: Apr 7, 2021 10:08 am

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