RBI cuts FY22 GDP forecast to 9.5%, holds rates; stance stays accommodative

RBI governor Shaktikanta Das says repo rate remains unchanged at 4 per cent, reverse repo rate at 3.35 per cent; MSF and bank rate kept unchanged at 4.25%

The Reserve Bank of India’s monetary policy committee (MPC) maintained key interest rates for a sixth straight meeting on Friday while retaining an accommodative stance to revive the economy amid coronavirus pandemic-induced stress.

The repo rate and the reverse repo rate were kept unchanged at 4 per cent and 3.35 per cent, respectively, said RBI Governor Shaktikanta Das in a statement on Friday after a three-day meeting of the committee in Mumbai.

The central bank reduced its FY22 GDP forecast to 9.5 per cent from the earlier estimate of 10.5 per cent. It projected retail inflation in FY22 at 5.1 per cent.

The committee will "continue with accommodative stance as long as necessary to revive and sustain growth on durable basis and to mitigate impact of Covid-19 on economy,” said Das.

Covid-19 infections have been waning in recent days, but India continues to be the global virus hotspot. Localised lockdowns from as early as March have cost the economy, with the output gap widening and the jobless rate rising.

India’s economy grew at an annual pace of 1.6 per cent during the first three months of 2021, just before the devastating second wave of Covid-19 hit. Economists are pessimistic about the ongoing April-June quarter's growth prospects.

RBI’s focus has been to support growth since the pandemic last year. It responded with a 75-bp reduction in the policy repo rate in March 2020, reacting days after a nationwide lockdown was announced. In May, the repo rate was reduced again by 40 bps. Since then, the central bank has maintained the status quo on the interest rates.