RBI to hold lending rate steady at 4% to aid economic recovery
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RBI to hold lending rate steady at 4% to aid economic recovery

For the 10th consecutive meeting, the Reserve Bank of India (RBI) kept its key lending rates at 4% to aid the economy's long-term recovery from the Covid-19 pandemic.

RBI Governor Shaktikanta Das said the monetary policy committee decided to hold the lending rate, or the repo rate, steady at 4%, and its reverse repo, or the rate at which it absorbs excess cash from lenders - unchanged at 3.35%.

The six-member MPC, which has been on hold since August 2020, voted unanimously to keep the repo rate unchanged and by a 5-1 margin to keep the accommodative policy stance in place for as long as necessary.

While the repo rate was expected to remain unchanged, some economists predicted a hike in the reverse repo rate to bring it in line with short-term money market rates.

The announcement comes just days after Finance Minister Nirmala Sitharaman proposed increasing spending to support the country's world-class economic recovery.

The Governor of the RBI informed that the government's emphasis on capital spending and exports is expected to boost productive capacity and aggregate demand. This would also attract private capital.

In light of the pandemic and rising global commodity prices, the RBI forecasted a 7.8% economic contraction in the fiscal year beginning April 1, down from 9.2% expected in 2021-22.

It lowered the inflation forecast for the next fiscal year to 4.5%, down from 5.3% this year.

From a year ago, retail inflation accelerated to a five-month high of 5.59% in December, while wholesale price-based inflation eased slightly to 13.56%, but remained in double digits for nine months.

Other announcements include a reduction in the hours when reverse repo and MSF windows are available, reverting to pre-pandemic liquidity management methods. Variable repo and 14-day reverse repo will be the primary liquidity tools, with auctions for longer maturities held as needed.

Since March 2020, the RBI has cut the repo rate by a total of 115 basis points (bps) to cushion the blow of the coronavirus pandemic and tough containment measures. The rate is now 250 basis points lower than it was at the start of the easing cycle in January 2019.

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Also read: RBI supersedes Srei Infrastructure and Srei Equipment Finance

For the 10th consecutive meeting, the Reserve Bank of India (RBI) kept its key lending rates at 4% to aid the economy's long-term recovery from the Covid-19 pandemic. RBI Governor Shaktikanta Das said the monetary policy committee decided to hold the lending rate, or the repo rate, steady at 4%, and its reverse repo, or the rate at which it absorbs excess cash from lenders - unchanged at 3.35%. The six-member MPC, which has been on hold since August 2020, voted unanimously to keep the repo rate unchanged and by a 5-1 margin to keep the accommodative policy stance in place for as long as necessary. While the repo rate was expected to remain unchanged, some economists predicted a hike in the reverse repo rate to bring it in line with short-term money market rates. The announcement comes just days after Finance Minister Nirmala Sitharaman proposed increasing spending to support the country's world-class economic recovery. The Governor of the RBI informed that the government's emphasis on capital spending and exports is expected to boost productive capacity and aggregate demand. This would also attract private capital. In light of the pandemic and rising global commodity prices, the RBI forecasted a 7.8% economic contraction in the fiscal year beginning April 1, down from 9.2% expected in 2021-22. It lowered the inflation forecast for the next fiscal year to 4.5%, down from 5.3% this year. From a year ago, retail inflation accelerated to a five-month high of 5.59% in December, while wholesale price-based inflation eased slightly to 13.56%, but remained in double digits for nine months. Other announcements include a reduction in the hours when reverse repo and MSF windows are available, reverting to pre-pandemic liquidity management methods. Variable repo and 14-day reverse repo will be the primary liquidity tools, with auctions for longer maturities held as needed. Since March 2020, the RBI has cut the repo rate by a total of 115 basis points (bps) to cushion the blow of the coronavirus pandemic and tough containment measures. The rate is now 250 basis points lower than it was at the start of the easing cycle in January 2019. Image Source Also read: RBI supersedes Srei Infrastructure and Srei Equipment Finance

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