India Central Bank Holds Key Rates, Expands Bond Purchases
June 04 2021 - 2:14AM
RTTF2
India's central bank decided on Friday to keep its key interest
rates unchanged and expanded the government bond purchase programme
as policymakers downgraded the growth outlook with the second wave
of the coronavirus pandemic taking its toll on economic
activity.
At the end of three-day rate setting meeting, the Monetary
Policy Committee of the Reserve Bank of India unanimously voted to
hold the benchmark policy rate at 4.00 percent. The reverse repo
rate was retained at 3.35 percent.
The Marginal Standing Facility rate and the Bank Rate were also
left unchanged at 4.25 percent at the meeting.
Also, the committee unanimously decided to continue with
accommodative stance as long as necessary to revive and 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 MPC observed that the second wave of COVID-19 has altered
the near-term outlook. The economy is projected to grow 9.5 percent
in the financial year 2021-22, which is less than the previous
outlook of 10.5 percent.
Consumer price inflation was seen at 5.1 percent during 2021-22.
Rising global commodity prices pose upside risks to the inflation
outlook.
The RBI governor Shaktikanta Das said excise duties, cess and
taxes need to be adjusted to contain input cost pressures emanating
from petrol and diesel prices.
The MPC said policy support from all sides is required to regain
the momentum of growth.
Das unveiled additional steps to mitigate the adverse impact of
the second wave of the pandemic.
Das unveiled another round of Government Securities Acquisition
Program, or G-SAP 1.0, for the purchase of G-secs of INR 400
billion. And also the RBI will undertake G-SAP 2.0 during this July
to September period and conduct secondary market purchase
operations.
The bank also decided to extend a special liquidity facility of
INR 160 billion to Small Industries Development Bank of India for
on-lending/ refinancing through novel models and structures.
He announced a separate liquidity window of INR 150 billion to
certain contact-intensive sectors.
Under the scheme, banks can provide fresh lending support to
hotels and restaurants, tourism, aviation ancillary services, and
other services that include private bus operators, car repair
services, rent-a-car service providers, event/conference
organizers, spa clinics, and beauty parlours/saloons. With the
economy likely to take time getting back to health, policy will
remain accommodative for a long while yet, Shilan Shah, an
economist at Capital Economics, said.
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