The Reserve Bank of India (RBI)’s Monetary Policy Committee (MPC) on August 6 said it expects headline inflation to remain elevated in the second quarter of 2021.
RBI Governor Shaktikanta Das said domestic food inflation remains elevated across most economies since the novel coronavirus outbreak.
Inflation pressures were evident across all sub-groups in June and more favourable food inflation outlook could emerge on good farm produce, Das said.
“Food inflation outlook may improve with rabi crop harvest, especially if open market sales are public distribution operations are expanded, with higher procurement,” Das added.
MPC kept the repo rate unchanged at 4 percent and maintained the stance as accommodative. Repo rate is the rate at which RBI lends funds to commercial banks when needed. The reverse repo rate was also kept unchanged at 3.35 percent.
The committee voted unanimously in favour of status quo.
Additionally, the central bank's governor said that India's real Gross Domestic Product (GDP) growth will remain in the negative zone in the first half and overall FY21.
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MPC has already cut key lending rates by an aggressive 115 basis points (bps) this year.
Some economists and market experts had suggested that it would be prudent for the policy committee to hold its fire in this meeting.
In May, Das had said inflation outlook was highly uncertain as assessed by MPC in the face of the COVID-19 crisis. The governor further said inflation should ease in the second half of 2020.
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