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RBI set to keep key rates unchanged to spur economic recovery

The Reserve Bank of India’s (RBI) six-member Monetary Policy Committee (MPC) has expectedly voted to keep the benchmark repo and reverse repo rates unchanged at record lows on Wednesday as the central bank retained its gross domestic product (GDP) growth target for Asia’s third largest economy at 9.5% in FY 2021-22.

The MPC’s maintenance of the status quo on its bimonthly policy rates for the ninth time comes at a time when policymakers are weighing the impact of Omicron, which is the newest variant of Covid-19.

The repo rate stands unchanged at 4% whereas the reverse repo rate remains at 3.35%. The marginal standing facility (MSF) and the Bank Rate also remain unchanged at 4.25%.

The repo rate refers to the rate at which commercial banks borrow money by selling their securities to the reserve bank, while the reverse repo rate is the rate at which the central bank borrows money.

These lending rates are key to boosting credit and investments by businesses in the economy as India pushes its nascent economic recovery amid the coronavirus pandemic.

“The MPC decided to continue with an 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,” the MPC’s resolution stated.

In an accompanying statement, RBI governor Shaktikanta Das said price stability, or keeping inflation within acceptable levels, remained the “cardinal principle” for the central bank’s monetary policy.

“Given the slack in the economy and the ongoing catching up of activity, especially of private consumption, which is still below its pre-pandemic levels, continued policy support is warranted for a durable and broad-based recovery,” Das told reporters.

Disruptions from the new variant of the coronavirus risked slowing the recovery, he added.

Maintaining a dovish stance, Das said the central bank needs to be “persevering, patient and persistent in our efforts”. “We also need to be aware, alert and agile to the new realities confronting us. Our efforts over the past one year and nine months have given us the confidence and a head start to face the challenges that lie ahead.”

India’s GDP grew at 8.4% in the three months ending September, exceeding expectations, on the back of increased government spending, exports and agriculture.

The country’s economic recovery is on track, but analysts say it will need more stability to return to a sure-footed growth trajectory after a record recession.

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