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RBI on Friday decided to keep benchmark interest rate unchanged at 4 per cent

October 09, 2020 12:51 PM

Mumbai, October 9
Maintaining status quo for the second time in a row, Reserve Bank of India on Friday decided to keep benchmark interest rate unchanged at 4 per cent but maintained an accommodative stance, implying more rate cuts in the future if the need arises to support the economy hit by the COVID-19 crisis.

The benchmark repurchase (repo) rate had been left unchanged at 4 per cent, Governor Shaktikanta Das said while announcing the decisions taken by the central bank's Monetary Policy Committee (MPC).

Consequently, the reverse repo rate will also continue to earn 3.35 per cent for banks for their deposits kept with the RBI.

The 25th meeting of the rate-setting MPC with three new external members — Ashima Goyal, Jayanth R Varma and Shashanka Bhide — began on October 7. This is the maiden meeting of the new members who were appointed just a day before the meeting for a term of four years.

It is to be noted that MPC meeting earlier slated between September 29 and October 1 was deferred for the first time as the government failed to appoint external members before the scheduled date.

The government moved the interest rate-setting role from the RBI Governor to the six-member MPC in 2016. Half of the panel, headed by the Governor, is made up of external independent members.

MPC has been given the mandate to maintain annual inflation at 4 per cent until March 31, 2021, with an upper tolerance of 6 per cent and lower tolerance of 2 per cent.

Highlights of RBI Governor's statement and resolution of the Monetary Policy Committee (MPC):

* Benchmark lending rate kept unchanged at 4 pc

* Indian economy expected to contract 9.5 pc this fiscal with downside risks

* Contraction 9.8 per cent projected in July-September; 5.6 pc in October-December and rebound in growth at 0.5 per cent in March quarter

* GDP growth for April-June quarter 2021-22 fiscal projected at 20.6 pc

* Accommodative monetary policy stance maintained to support growth

* Indian economy entering into decisive phase in fight against coronavirus, focus must shift from containment to reviving economy

* Contraction in economic growth of Q1 behind; silver linings are visible

* GDP growth may break out of contraction and enter positive zone by March quarter of current fiscal

* Inflation to remain elevated in September quarter, but ease gradually towards the target over December and March quarters

* Retail inflation projected at 6.8 per cent for September quarter

* Current inflation hump transient; agriculture outlook looks bright, oil prices to remain rangebound

* RTGS fund transfer system for real-time fund transfer to become 24X7 from December

* Threshold for aggregate exposure of retail bank loans to one counterparty increased to Rs 7.5 crore from Rs 5 crore

* System-based automatic caution-listing for exporters discontinued to help them negotiate better terms with overseas buyers

* Comfortable liquidity position to be maintained; Rs 20, 000 crore-OMO auction next week

* On-tap targeted long-term repo operations (TLTRO) to be conducted, with tenors of up to three years for Rs 1 lakh crore at a floating rate linked to the policy repo rate up to March 31, 2021

* All MPC members vote for keeping the policy repo rate unchanged and continue with the accommodative stance. PTI

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