Das said there was space for further policy rate cuts but it was ''important to use it judiciously''
The MPC was conscious of the mid-term inflation target while choosing to keep the key policy rates unchanged
The Reserve Bank of India’s Monetary Policy Committee (MPC) on Thursday kept key interest rates unchanged on fears that inflation could surge in coming months as localised lockdowns continue to disrupt supplies.
The repo rate thus remains 4%, reverse repo rate 3.35% and bank rate 4.25%.
Reserve bank of India governor Shaltikanta Das said there was space for further policy rate cuts but it was “important to use it judiciously". The MPC was conscious of the mid-term inflation target while choosing to keep the key policy rates unchanged, he said in a live broadcast.
India's consumer price inflation (CPI) softened to 6.1% in June from 7.2% in April, as lockdown lifted and supplies improved. The MPC aims to keep the retail inflation at 4% within a band of +/- 2% in the medium-term through its policy rate changes.
The MPC is of the view that supply disruptions persist even as a bumper rabi crop could ease food prices. Nonetheless, upside risks to food prices remain, the MPC felt. Prices of protein based food could also move up, Das said, adding that inflation in July-September may be elevated before easing in the second half if this fiscal.
Agriculture prospects have strengthened because of good monsoons and higher sowing, Das said.
The MPC noted that the economy had started to recover from its April and May lows.
The rate setting panel concluded the real GDP will remain in the negative in the current fiscal though an early recovery could bring some upside. At the same, an extended fall could not be ruled out, the MPC felt.
Ratings agency Icra estimates India’s 2020-21 GDP to contract by 9.5% from its earlier forecast of 5% contraction.
The MPC had at its last 22 May policy meet refrained from giving a guidance on inflation, saying the outlook on prices was uncertain. While inflation is expected to spike in July due to localized lockdowns and fresh supply disruptions, it is expected to ease in the second half.
A Mint survey had showed that six out of 10 bankers polled expect RBI to keep policy repo rate on hold at 4%, while the rest expected a 25 bps cut. This is contrary to a Bloomberg poll of 44 economists which showed that the street remained divided with 22 economists expecting a 25 bps cut, one projecting a 50 bps move and the rest saw no change. Economists are expecting inflation to fall to 4.5% in the second half of the fiscal year.
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