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RBI Policy: MPC keeps repo rate steady at 4%, stance remains accommodative

RBI Monetary Policy: The MPC has kept rates steady at a time inflation is showing an easing trend and recovery is happening on the ground

October 08, 2021 / 10:44 AM IST
Reserve Bank of India (RBI) Governor Shaktikanta Das

Reserve Bank of India (RBI) Governor Shaktikanta Das

The monetary policy committee (MPC) on October 8 kept the key lending rate, the repo rate, unchanged at 4 percent and retained the monetary stance as ‘accommodative’. An accommodative stance refers to the rate setting panel’s willingness to either cut rates or remain on hold. Repo is the rate at which the central bank lends short-term funds to banks.

This is the eighth consecutive time the MPC maintaining a status quo in rates. The rate action is on the expected lines as most economists polled by Moneycontrol had predicted a status quo in rates considering the present growth-inflation scenario.

Follow our LIVE blog on the RBI Monetary Policy Updates here

"The RBI’s Monetary Policy Committee has decided to maintain the Repo Rate at 4 percent in the October policy. We also retain the ‘accommodative’ stance and will ensure that inflation remains within target range. The policy rate decision was unanimous, stance decision was 5:1," said Governor Das.

The Governor also announced that Marginal Standing Facility (MSF) has been unchanged at 4.25 percent. He added that the July-September CPI inflation was "lower than anticipated".

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"We are seeing some signs of revival in investment activity. Further, with pent-up demand, the festive season should boost urban demand".

The RBI has also maintained FY22 GDP growth target at 9.5 percent. For Q1FY23, the central bank has GDP growth target at 17.1 percent.

Das said the central bank sees Q2FY22 GDP growth at 7.9 percent compared to 7.3 percent earlier; Q3FY22 GDP growth at 6.8 percent against 6.3 percent earlier and retained the GDP growth at 6.1 percent for Q4FY22.

"High frequency indicators suggest economic activity has gained momentum. Core inflation remains sticky. July-September Consumer price Index (CPI) inflation was lower than anticipated. India in a much better place today than at the time of the last MPC meeting," the Governor said

"Growth impulses are strengthening, inflation trajectory more favourable than expected. Pent-up demand, festival season should boost urban demand. Recovery in demand gathered pace in Aug-Sep. Pick-up in import of cap goods point to some recovery in activity," he noted.

On the inflation front, the central bank has lowered its FY22 CPI Inflation target to 5.3 percent from the earlier 5.7 percent. It also saw July-September CPI inflation at 5.1 percent compared to the 5.9 earlier. The October-December CPI Inflation is estimated at 4.5 percent compared to the 5.3 percent earlier.

Importantly, the RBI sounded optimistic on the growth recovery in Indian economy. On October 5, ratings agency Moody's hiked India's sovereign credit rating outlook to stable from negative, citing an improvement in the financial sector and faster-than-expected economic recovery across sectors.

In the last policy review, the MPC had retained the projection for real GDP growth at 9.5 per cent for 2021-22. Real GDP growth for the first quarter of 2022-23 is projected at 17.2 per cent.

In last MPC review in August, the central bank had kept key rates unchanged for the seventh successive time. It held the repo rate, its key lending rate, steady at 4 percent and the reverse repo rate, the borrowing rate, at 3.35 percent. RBI had last slashed the repo rate in May 2020 to a historic low of 4 percent to support the COVID-19 hit economy.
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