RBI announces monetary policy; interest rates unchanged, GDP forecast cut to 9.5%

Srinagar: The Reserve Bank of India’s (RBI’s) six-member monetary policy committee, headed by Governor Shaktikanta Das, on Friday kept the benchmark interest rate unchanged amid coronavirus uncertainty and fears over inflation.

The repo rate (lending rate) will continue at 4.00% and reverse repo rate (RBI’s borrowing rate) at 3.35%. With this, the repo rate has remained unchanged for a sixth consecutive time.

RBI revised FY22 real GDP growth projection to 9.5% — 18.5% in Q1, 7.9% in Q2, 7.2% in Q3 and 6.6% in Q4. “Unlike the first wave of Covid-19, where economy came to a standstill, economic impact during the second wave will be contained,” the RBI Governor said.

The projection for CPI-based inflation in FY22 is 5.1% — 5.2% in Q1, 5.4% in Q2, 4.7% in Q3 and 5.3% in Q4.

“Going forward, the inflation trajectory is likely to be shaped by uncertainties impinging on the upside and the downside. The rising trajectory of international commodity prices, especially of crude, together with logistics costs, pose upside risks to the inflation outlook,” the RBI said.

Adding: “Rural demand remains strong and the expected normal monsoon bodes well for sustaining its buoyancy, going forward. The increased spread of COVID-19 infections in rural areas, however, poses downside risks.”

The lowering of GDP projections comes on the back of the second wave of Covid infections that brought the Indian economy to a near standstill over the past few weeks. The GDP growth estimate is close to what most leading economists and brokerages have recently forecast.