PTI
Mumbai
The Reserve Bank of India (RBI) on Friday kept interest rates on hold for the fourth time in a row but vowed to support growth as long as it is needed even as it began withdrawing some pandemic-era policies.
While the Union Budget 2021 earlier this week laid out an expansive fiscal strategy over the medium term to strengthen the growth engine in the economy, the RBI affirmed its support to such a plan through appropriate monetary tools.
The six-member Monetary Policy Committee (MPC) kept the repurchase or repo rate unchanged at 4 per cent, Governor Shaktikanta Das said. Consequently, the reverse repo rate will continue to earn 3.35 per cent for banks for their deposits kept with the RBI.
The central banks had last year cut borrowing costs by 115 basis points before hitting the pause
button in mid-2020 over inflation worries.
All six members of the MPC voted to continue with the accommodative stance as long as it is necessary to revive growth and mitigate the impact of COVID-19 on the economy while ensuring that inflation remains within the target.
Signalling rollback of pandemic-era policies, the RBI announced a gradual increase in the Cash Reserve Ratio (CRR) – the amount of deposits lenders must set aside as reserves – to 3.5 per cent by March and to 4 per cent by May. The cash returning to the central bank can be used by it for open market operations and other liquidity measures.
To absorb higher government borrowings, the central bank provided retail investors a direct option to invest in government securities.
Acknowledging the strengthening signs of recovery, the RBI applauded the Union Budget 2021-22 for providing a strong impetus for revival while stating that the near-term inflation outlook has turned favourable.
RBI expects Gross Domestic Product (GDP) for next year to grow by 10.5 per cent, a tad lower than 11 per cent predicted by the government’s Economic Survey last week. The growth compares to an estimated 7.7 per cent contraction in the economy during the current fiscal ending March 31.