In line with expectations, the central bank has left policy rates unchanged. The repo rate stands at 4 per cent, the reverse repo rate at 3.35 per cent, and the marginal standing facility rate and the bank rate remain at 4.25 per cent. The Reserve Bank of India (RBI) has stated that accommodative stance will prevail as long as necessary to sustain growth on a durable basis and continue to mitigate the impact of COVID-19 on the economy, while ensuring that inflation remains within the target going forward.
With this, the Indian economy is expected to witness the lengthiest period of policy rate stability in at least 15 years. The RBI has kept the repo rate unchanged for the fifth consecutive quarter, which was last slashed in May 2020 by 40 basis points. Earlier, during the rising rate regime, between March 2007 and March 2008, the central bank had kept the repo rate unchanged at 7.8 per cent that jumped to 8.5 per cent by the next quarter and it soon rose to a high of 9 per cent by September 2008. In another such case, the benchmark repo rate stood at 8 per cent for four quarters in a row between March 2014 and December 2014.
The policy rate retained at 4 per cent is at its lowest level in over a decade.
The overall focus of the RBI is to make available adequate liquidity that it deems necessary for conduct of economic activity. Along with liquidity it is also striving to keep the cost of fund low by anchoring bond yields; and has indicated the scale of support to be extended towards this end.
"The monetary policy continues to be growth centric, despite the underlying upside risks to inflation. This is so as it believes that the inflation today is short-term in nature while growth has to be protected for long term sustainability. Although the assurance of retaining the accommodative monetary policy stance to support growth reduces the likelihood of a rate hike at least in H1 FY22, it also rules out the likelihood a rate cut," a CARE Ratings report said.
The Monetary Policy Committee (MPC) will meet six times during the current financial year. The second meeting of MPC will be held on June 2-4; third meeting (August 4-6); fourth, fifth and sixth meetings will be held in October, December and February 2022.