Published 12:42 IST, December 4th 2020
RBI holds interest rates; projects GDP growth returning to positive territory in current quarter
The Reserve Bank of India (RBI) on Friday left interest rates unchanged for a third straight meeting as inflation stayed stubbornly high, and said the economy was recuperating fast and would return to positive growth in the current quarter itself.
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Reserve Bank of India (RBI) on Friday left interest rates unchanged for a third straight meeting as inflation stayed stubbornly high, and said ecomy was recuperating fast and would return to positive growth in current quarter itself. benchmark repurchase rate will be maintained at 4 per cent, RBI Goverr Shaktikanta Das said. six-member Monetary Policy Committee (MPC) retained its accommodative stance, signaling its intentions to cut interest rates whenever situation eases.
A spike in consumer prices forced RBI to pause after cutting rates by 115 basis points this year. central bank, which had previously expected ecomy to shrink 9.5 per cent in year to March, revised its forecast after a shallower-than-expected decline in gross domestic product (GDP) in July-September quarter. Das said high-frequency indicators point to a recovery gaining traction, with double-digit growth in passenger vehicles and motorcycle sales, railway freight traffic, and electricity consumption in October.
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GDP, he said, will grow by 0.1 per cent in October-December quarter and by 0.7 per cent in following three months. Overall, 2020-21 fiscal will end with a (-) 7.5 per cent degrowth. ecomy had contracted by a record 23.9 per cent in April-June quarter and by 7.5 per cent in following three months.
two successive quarters of contraction pushed ecomy into a technical recession. This is first recession since quarterly records started in 1996. RBI had previously forecast a 5.6 per cent contraction in quarter through December, followed by a return to growth in three months to March. Das said inflation continues to be sticky.
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Headline retail inflation at 7.6 per cent in October was well above upper end of central bank's 2-6 per cent target band. For H1 2021-22, RBI projected growth of 21.9 per cent to 6.5 per cent. RBI saw inflation in fiscal third quarter at 6.8 per cent, and easing a bit to 5.8 per cent in January-March. It is projected to be in range of 5.2 to 4.6 per cent in first half of 2021-22 fiscal.
"Inflation is likely to remain elevated," he said, adding that this constrains monetary policy at current juncture from using available to act in support of growth.
Stating that RBI was ready to take furr measures to ease liquidity, he said central bank will use various instruments at appropriate time to ensure ample liquidity is available in system. He also anunces measures to deepen corporate bond market and supervisory measures for shadow banking sector. RBI raised limit of contactless card transactions to Rs 5,000 per us from current Rs 2,000, with effect from January 1. Also, real-time gross settlement systems (RTGS) will be available 24x7 in next few days, he said.
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" MPC decided to continue with accommodative stance as long as necessary, at least during current financial year and into next financial year – to revive growth on a durable basis and mitigate impact of COVID-19 on ecomy, while ensuring that inflation remains within target going forward," he said.
12:42 IST, December 4th 2020