RBI keeps policy rates unchanged

The monetary policy committee of the Reserve Bank of India kept policy rates unchanged, and the governor assured that the worst was possibly over for the economy and it can now hope for steady recovery towards pre-pandemic growth rates.

The newly-appointed six member MPC voted unanimously to keep the policy repo rate at 4 per cent, and said the real gross domestic product growth rate in 2020-21 could be a negative 9.5 per cent, with “risks tilted to the downside.”

The stance of the policy would remain “accommodative,” for “as long as necessary – at least during the current financial year and into the next year – to revive growth on a durable basis and mitigate the impact of Covid-19, while ensuring that inflation remains within the target going forward,” RBI governor Shaktikanta Das in his streamed monetary policy address on Friday morning.

The RBI governor also assured adequate liquidity support for the bond market, including promise of more open market operations through which the central bank buys and sells bonds from the market. For the first time, the RBI will also conduct OMO on state development loans, or bonds issued by states, to contain their spreads over equivalent maturity government securities. The RBI governor urged to cooperate with the central bank on conducting the centre’s and states’ borrowing programme, and said the RBI and the bond market can be “competitive without being combative.”

The shorter and longer tenure bonds rallied. The 10-year bond yield fell 8 basis points to 5.937 per cent, while the three-year bond yield fell 16 basis points.

The breakup given was the GDP of negative 9.8 per cent in the second quarter ended September, negative 5.6 per cent for the third quarter ended December, and a positive 0.5 per cent in the fourth quarter ended March. The economy contracted by a record 23.9 per cent in the first quarter ended June.

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