‘Watchful’ RBI leaves repo rate unchanged to keep inflation in check
- The Reserve Bank of India has left the benchmark interest rate unchanged at 4%.
- Reverse repo rate unchanged at 3.35%.
- The June retail inflation stood at 6.09%.
|Date||Degree of change||New repo rate|
“Today’s inaction in no way suggests a U-turn in interest rate trajectory. The MPC members have been mindful of the recent spike in CPI inflation, hence the inaction seems valid. Growth worries remaining, the accommodative bias suggests scope for further easing as inflation recedes in the second half of FY21. We expect benign rate scenario to remain conducive for bonds,” Lakshmi Iyer, CIO (Debt) & Head of Products, Kotak Mahindra Asset Management Company said
India's central bank has slashed the repo rate twice in the last 4 months totaling a 115 basis points (bps). 100 bps make up one percent and the repo rate is one of the instruments that the RBI has on hand to control inflation and spur growth. The rate currently stands at 4% whereas the June retail inflation stood at 6.09%.
“While there is space for further monetary policy action [read rate cuts], it is important to use it judiciously,” Das said in his statement.
High domestic prices of petroleum prices, due to recent increase in duties, will increase prices going forward. Inflation pressure will remain high till September and may ease in the second half of the year.
Household inflation expectation for the next one year is lower than the expectation for the next three months, according to the latest RBI survey.
|Month||Rate of Inflation||Quarterly average|
India’s foreign exchange (FOREX) reserves have risen to $534.6 billion as of July 31, equivalent to 13.4 months of imports, the governor said in his statement.
The RBI has also announced a new committee that will be set up under KV Kamath to overlook the onetime restructuring of loans. The scheme that was launched to restructure MSME loans earlier will be extended to MSME borrowers provided the loans didn't go bad before March 1. Priority sector lending guidelines are also being reviewed.
RBI brings in KV Kamath to set the boundaries for a one-time restructuring of loans