RBI keeps interest rates at record low to boost economic recovery

The Fact News Service
Mumbai, October 9

The RBI expectedly kept interest rates unchanged at a record low on Friday but signaled the start of tapering pandemic-era stimulus measures on economic recovery taking roots.

The six-member Monetary Policy Committee (MPC) kept the key lending rate or the repo rate unchanged at 4% while the reverse repo rate or the borrowing rate was maintained at 3.35%. It voted 5-1 to retain the accommodative stance, RBI Governor Shaktikanta Das said in an online broadcast.

He indicated the Central bank’s willingness to make “gradual” adjustments to the excess liquidity in the monetary system which currently stands at over Rs 9 lakh crore.

Importantly, the GSAP programme to purchase government securities from the market has been stopped for now to ensure that there is no further infusion of liquidity, he said and stressed that the step is not a reversal of its accommodative policy stance. RBI will be ready to resume bond purchases if needed, he added.

RBI had bought Rs 2.2 lakh crore worth bonds through Government Securities Acquisition Programme or GSAP in the previous two quarters. While it maintained GDP growth projection at 9.5% for the current fiscal ending March 2022, the Central bank cut the forecast for the headline inflation to 5.3% from 5.7% based on the current moderation in the liquidity trajectory. “Aggregate demand is improving but slack still remains,” Das said. “Output is still below pre-pandemic level and the recovery remains uneven and dependent upon continued policy support.” The existing 14-day VRRR auction will be stepped up with the auction amount set to increase by Rs 1-2 lakh crore over the next 2 months, reaching up to Rs 6 lakh crore by December. Further, RBI may consider the introduction of a 28-day VRRR, if necessary, to further calibrate the liquidity levels.

The plan is to reduce the surplus system liquidity from the current high levels to around Rs 2-3 lakh crore by the end of the current quarter.

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