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NEW DELHI: The six-member RBI monetary policy committee (MPC) on Friday kept the policy rate unchanged at 4 per cent and maintained an accommodative stance, largely in line with Dalal Street expectations. The reverse repo rate remained unchanged at 3.35 per cent.

The decision came amid a cut in FY22 GDP growth forecast by the RBI to 9.5 per cent from 10.5 per cent earlier.

“Tough times call for tough decisions. I am convinced as we stretch out to bring the virus under control it will bring the best out of us,” Governor Shaktikanta Das said.

In the past couple of days, a host of rating agencies, banks and brokerages have cut India’s GDP forecast. Moody’s pegged India’s FY22 GDP growth at 9.3 per cent. SBI Research pared its GDP forecast to 7.9 per cent from 10.4 per cent earlier. HDFC Bank forecast GDP growth at 10 per cent for FY22, revised down from an earlier estimate of 11.5 per cent.

In its annual report released last week, RBI expected the impact of the second wave of Covid-19 infections to be limited to the June quarter with some spillover to July.


POLICY HIGHLIGHTS
MPC DECISIONS:-

  • MPC voted unanimously to keep repo rate unchanged at 4%
  • MPC has also voted to continue with the accommodative stance as long as necessary to revive and sustain growth in a durable basis while ensuring inflation remains within the target
  • RBI cuts FY22 GDP forecast to 9.5% from 10.5%
  • MPC now sees CPI inflation at 5.1% in 2021-22; 5.2% in Q1, 5.4% in Q2, 4.7% in Q3 and 5.3% in Q4



GOVERNOR DAS VERBATIM
Das said the forecast of normal monsoon, the resilience of farm economy, and gathering recovery in the global economy are forces that can provide tailwinds to the economy when the second wave ebbs. Impact on the economic activity of the second wave is expected to be relatively contained as people and businesses are adapting to Covid, Das said.

“Forecast of normal monsoon, resilience of farm economy, and gathering momentum of global recovery are forces that can provide tailwinds to the economy when second wave ebbs…

“Dent on urban demand and spread of COVID-19 in rural pose downside risk to growth…

“At this juncture, policy support from all sides is required to gain the momentum of growth and nurture the recovery after it has taken root…

“Impact on economic activity of second wave is expected to be relatively contained, people and businesses are adapting to COVID…

“Rebound in global demand is taking hold, which should strengthen India’s export sector…

“Real GDP growth now seen at 9.5% in 2021-22 from 10.5%

“Upside risk to inflation emanate from persistence of second wave…

“MPC now sees CPI inflation at 5.1% in 2021-22; 5.2% in Q1, 5.4% in Q2, 4.7% in Q3 and 5.3% in Q4…

“Rural demand is expected to remain strong as forecast of monsoon bodes well for sustenance of its buoyancy..

“Need of the hour is enhanced and targeted policy support for exports…

“MPC now sees CPI inflation at 5.1% in 2021-22; 5.2% in Q1, 5.4% in Q2, 4.7% in Q3 and 5.3% in Q4…

“Rural demand is expected to remain strong as forecast of monsoon bodes well for sustenance of its buoyancy…

“Need of the hour is enhanced and targeted policy support for exports…

“Focus of RBI turning from systemic liquidity to equitable distribution…

“Will continue with proactive and preemptive approach through market channels…

“Have decided another operation under GSAP 1.0 for purchase of Rs. 40,000 crore will be conducted on Jun 17 of which Rs. 10,000 crore will be for SDLs…

“To undertake GSAP 2.0 in July-September and purchase bonds worth Rs. 1.20 lakh crore to support the market…

“Feel our forex reserves have already exceeded $600 billion, which gives confidence to deal with any external issues….

…More to come

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