Reserve Bank of India (RBI) Governor Shaktikanta Das said on Friday, December 4, that inflation is expected to remain on the higher side.
Speaking at the Monetary Policy Committee (MPC) announcement, Das said that the CPI (consumer price index) inflation is likely to be 6.8% for Q3 adding that it is pegged to come down to 5.8% for Q4. For H1FY22, he said inflation is predicted to hover in the range of 4.6% to 5.2% with risks continuing to be broadly balanced.
"This (inflation) constraints the MPC, at the current juncture, from using the space available to act in support of growth," Das noted.
With this concern over elevated inflation, the MPC has decided to leave benchmark interest rate unchanged at 4% maintaining an accommodative stance.
The benchmark repo rate has also been left unchanged at 4 per cent, Das said, while announcing the decisions taken by RBI's MPC.
Reverse repo rate will continue to earn 3.35 per cent for banks for their deposits kept with the central bank.
Das stated that the MPC voted to keep interest rates unchanged and continued with its accommodative stance to support growth.
The RBI had slashed the repo rate by 115 basis points since late March to support growth.
The regulator last revised its policy rate on May 22, in an off-policy cycle, to perk up demand by cutting interest rates to a historic low.
The 26th meeting of the rate-setting MPC with three external members -- Ashima Goyal, Jayanth R Varma, and Shashanka Bhide -- began on December 2. This was the second meeting of these members who are appointed for a term of four years.
The government moved the interest rate-setting role from RBI Governor to the six-member MPC in 2016. Half of the panel, headed by the Governor, is made up of external independent members.
The MPC has been given the mandate to maintain annual inflation at 4 per cent by March 31, 2021, with an upper tolerance of 6 per cent and a lower tolerance of 2 per cent.