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RBI Policy: Repo rate left unch at 4.00%, gilt buy plan launched

Informist, Wednesday, Apr 7, 2021

 

NEW DELHI – The Reserve Bank of India's Monetary Policy Committee today unanimously voted to leave the repo rate unchanged at 4.00% and maintain its accommodative stance.

 

"The MPC decided to continue with the accommodative stance 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," the committee said in its resolution.

 

However, in his address announcing the committee's resolution, RBI Governor Shaktikanta Das said the MPC judged that monetary policy should remain accommodative to support and nurture the recovery.

 

"In other words, the stance of monetary policy will remain accommodative till the prospects of sustained recovery are well secured while closely monitoring the evolving outlook for inflation," Das said.

 

The committee's decision to leave the policy rate unchanged at a record low is along expected lines, with all 20 economists polled by Informist expecting a status quo on rates.

 

The guidance provided today was a change from that given in the last three meetings, when the committee said it had decided to continue with the accommodative stance at least during 2020-21 (Apr-Mar) and into 2021-22.

 

Das also announced an unprecedented gilt purchase plan called Secondary Market Gilt Acquisition Programme, or 'GSAP 1.0'. Under this programme, the RBI will upfront commit to purchase a certain amount of gilts over a specific period.

 

In his address, Das said the RBI will buy gilts worth 1 trln rupees from the secondary market in Apr-Jun, starting with a 250-bln-rupee purchase on Apr 15.

 

Das called on the market to take heed of the RBI's signals, actions, and communication in a balanced manner.

 

Das is scheduled to address the media at 1200 IST.

 

The committee's decision today comes as the country has been engulfed by the second wave of the coronavirus, with over 300,000 confirmed cases in the last 72 hours. Regions facing the brunt of the second wave, such as Maharashtra and Delhi, have imposed new restrictions on movement in recent days, while others, like Gujarat, are mulling over moves to contain the spread of the virus.

 

While the second wave threatens to disrupt economic activity, the RBI did not think its growth forecast of 10.5% for 2021-22 warranted a downward revision.

 

Tuesday, the International Monetary Fund raised its GDP growth forecast for India for the current year by 100 basis points to 12.5%.

 

Just as the numbers of cases of coronavirus are on the rise, inflation too has jumped. Latest data for February showed CPI inflation jumping to 5.03% from 4.06% in January. Economists are predicting another sharp increase in March, data for which will be released next week.

 

As per the RBI's new inflation forecast, CPI inflation is seen averaging 5.0% in Jan-Mar, down from 5.2% estimated previously.

 

Inflation is seen averaging 5.2% in Apr-Jun as well as Jul-Sep, before easing to 4.4% in Oct-Dec. In the first quarter of 2022, CPI inflation is seen rising to 5.1%.

 

In February, the central bank had expected inflation to average 5.2% in Apr-Jun, 5.0% in Jul-Sep, and 4.3% in Oct-Dec.

 

The committee is scheduled to next meet Jun 2-4.  End

 

Reported by Siddharth Upasani

Edited by Akul Nishant Akhoury

 

Cogencis news is now Informist. This follows the acquisition of Cogencis Information Services Ltd by NSE Data & Analytics Ltd, a 100% subsidiary of the National Stock Exchange of India Ltd. As a part of the transaction, the news department of Cogencis has been sold to Informist Media Pvt Ltd.

 

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