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RBI leaves rates unchanged to push growth

Reserve Bank of India on Friday kept the repo rate – the rate at which banks borrow from the central bank — unchanged at 4 per cent. The reverse repo rate has also been retained at 3.35 per cent. Prioritising growth over inflation at a critical juncture, when the economy is showing signs of revival, has been welcomed by the industry.

The monetary policy committee (MPC) of the central bank decided to "continue with the accommodative stance for as long as necessary– at least during the current financial year and into the next financial year – to revive growth on a durable basis and mitigate the impact of Covid-19 on the economy, while ensuring that inflation remains within the target going forward," An RBI statement said.

RBI governor Shaktikanta Das said that the decision to keep the repo rate unchanged was taken unanimously by the MPC.

The RBI, however, noted that inflation rate — as measured by the consumer price index (CPI) — rose sharply to 7.3 per cent in September and further to 7.6 per cent in October 2020, “with some evidence that price pressures are spreading.” Food inflation also surged to double digits in October across protein-rich items including pulses, edible oils, vegetables and spices on multiple supply shocks. Core inflation — excluding food and fuel — also rose from 5.4 per cent in September to 5.8 per cent in October.

“The RBI’s decision of keeping the repo rate unchanged was on expected lines owing to the rise in inflation in recent months. In the wake of Covid-19, Q2 of FY21 witnessed a strong improvement in consumption and therefore RBI maintaining the status quo for the third time in a row is a positive step in keeping inflation under control,” Anshuman Magazine, Chairman & CEO – CBRE India, South East Asia, Middle East & Africa said.

The inflation drivers seem to be more supply-side led, financial services major Motilal Oswal said. “An accommodative liquidity stance will ensure access to liquidity will not be a challenge and the ongoing recovery continues to gather steam. This will help push through government borrowings in a year where the revenues are under pressure,” Ashish Shanker, deputy MD and head of investment, Motilal Oswal Private Wealth Management said in a statement.

The RBI in its statement noted that the accommodative stance will ensure adequate liquidity in the system and will further reinforce stability in the economy..