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RBI Governor Shaktikanta Das said that economy is in a better position now than during the June meeting.

Your equated monthly instalments (EMIs) will remain the same after the Reserve Bank of India (RBI) on August 6 maintained status quo on policy rates at its third bi-monthly monetary policy review for the current fiscal. The Monetary Policy Committee (MPC) has kept the repo rate steady at 4% with an accommodative stance as the economy is yet to recover from the impact of the second Covid wave. Repo rate is the rate at which the RBI provides liquidity to banks to overcome short-term mismatches. On the other hand, the reverse repo rate also stood unchanged at 3.35%.

RBI Governor Shaktikanta Das said that economy is in a better position now than during the June meeting. “Action aimed at prioritising growth and addressing distress in economy,” said Das. Meanwhile, the benchmark BSE Sensex traded around 75.86 points higher at 54,568 at around 10 am (IST), while the NSE Nifty index was up 36 points at 16,332.

Indian economy

Das further added that the Indian economy is recovering from the setback of the second wave of Covid-19. “Economic activity normalising with the ebbing of the second wave. Consumption, investment, external demand on the path of regaining traction,” he said adding more needs to be done to restore supply-demand balance in the economy.

This is the seventh time in a row that the MPC has maintained the status quo. RBI had last revised its policy rate on May 22, 2020, in an off-policy cycle to perk up demand by cutting interest rate to a historic low.

Accomodative stance

The governor added that MPC voted unanimously for keeping interest rate unchanged and decided to continue with its accommodative stance as long as necessary to support growth and keep inflation within the target. MPC has been given the mandate to maintain annual inflation at 4% until March 31, 2026, with an upper tolerance of 6% and a lower tolerance of 2%.

He further said that some high frequency indicators are reflecting a recovery in the economy. “RBI retains GDP growth target at 9.5% in FY22 and CPI inflation has seen at 5.7% in 2020-21. It may fall to 5.1% in April-June 2022,” said Das.

Analysts take

Commenting on the RBI policy outcome, Sandeep Bagla CEO, TRUST Mutual Fund said, “RBI policy is hawkish at the margin. RBI has acknowledged the strong growth and negative surprise on the inflation front. One of the MPC members has voted for the change in accommodative stance. While there is no real change in the policy, bond market participants will take the nuanced change in language seriously. There is a distinct possibility that yields at the longer end, 10 years, will inch up towards 6.50% gradually. Investors should invest in bond funds with lesser than 3 years maturity to minimise interest rate risk.”

VK Vijayakumar, chief investment strategist, Geojit Financial Services added that the monetary policy announcements came exactly on expected lines-continuation of the accommodative monetary stance, status quo in policy rates, maintaining the FY GDP at 9.5% and upward revision in FY 22 CPI inflation rates.

“The upward revision in CPI inflation rate to 5.7% from 5.1% earlier reflects the higher inflation prints in recent months. But the MPC believes that the higher inflation trend is transitory since it is caused by supply-side constraints. The governor again reiterated that the RBI’s priority would be “to promote growth within the framework of financial stability”. The RBI is rightly concerned that any departure from the present pro-growth monetary policy may kill the nascent and hesitant recovery. The communication from the central bank augurs well for the continuation of the growth impulses in the economy,” he added.