The Reserve Bank of India (RBI) on Thursday pegged the GDP growth for 2020-21 at 6 per cent while keeping the repo rate unchanged at 5.15%.
A statement issued by the bank said, ”RBI will continue with its accommodative stance as long as it takes.” It further stated that the economy continues to be weak and the output gap remains negative as it announced its Monetary Policy Statement on Thursday.
The announcement was made the six-member monetary policy committee of the Reserve Bank of India (RBI), who voted in favour of maintaining the status quo on the interest rates. The RBI committee also released its sixth bi-monthly Monetary Policy Statement for 2019-20 on its website.
Led by Governor Shaktikanta, the RBI committee announces its decision on a bi-monthly basis. RBI monetary policy committee had started its three-day brainstorming meeting on Tuesday in the backdrop of Union Budget projecting a widening of fiscal deficit amid a slowing economy and hardening inflation.
The committee had been tasked by the government to tame retail inflation based on Consumer Price Index (CPI) at 4 per cent (+,- 2 per cent). The retail inflation that for several months remained in the comfort zone of the central bank has started inching up and crossed the 7 per cent mark during December 2019, mainly due to spiralling prices of vegetables.
In view of that, there were grim chances of RBI announcing any major cuts in the lending rates. Experts earlier said that the MPC members are going to have a tough time as slowing economy makes the case for reduction in repo rate difficult while rising inflation and higher fiscal deficit will require the central bank to either hike the rate or maintain a status quo.
Monetary policy is the macroeconomic policy laid down by the RBI, which constitutes the management of money supply and interest rates. The central bank tweaks interest rates to achieve macroeconomic objectives such as liquidity, consumption, and inflation.