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Financial News: India Holds Rates Steady Amid Pandemic Resurgence

India Holds Rates Steady Amid Pandemic Resurgence

04/07/2021 - 06:08:00 (RTTNews)

(RTTNews) - India's central bank left its key interest rates unchanged and vowed to continue its accommodative stance as long as needed amid a steep rise in Covid-19 infections in the country.

The Monetary Policy Committee of the Reserve Bank of India unanimously voted to maintain the policy repo rate at 4.00 percent. The reverse repo rate was retained at 3.35 percent.

The bank had last reduced the benchmark repo rate by 40 basis points to the current level in May 2020.

The Marginal Standing Facility rate and the Bank rate were also left unchanged at 4.25 percent at the meeting.

Policymakers also decided to continue with the accommodative stance as long as necessary to 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 going forward.

Looking ahead, markets are still pricing in around 75 basis points of rate hikes over the next 12 months. "We think that is very unlikely, even if virus cases do subside before too long," Shilan Shah, an economist at Capital Economics, said.

RBI Governor Shaktikanta Das also announced a government bond purchase programme. The central bank will buy INR 1 trillion government securities from the secondary market during the April to June period. The purchase will begin from April 15.

The bank retained its real GDP growth forecast for 2021-22 at 10.5 percent, Das said during the press conference.

On Tuesday, the International Monetary Fund upgraded India's growth forecast for this year by a percent from January to 12.5 percent. The projection for next year was upgraded to 6.9 percent.

Das said the recent surge in Covid-19 infections added uncertainty to the domestic growth outlook amidst tightening of restrictions by some state governments.

Inflation remained within the tolerance band in February. The future food inflation trajectory will critically depend on the temporal and spatial progress of the south-west monsoon in its 2021 season, Das said.

Further, high global commodity prices and logistics costs may push up input price pressures, the central bank chief added.

Consumer price inflation is seen at 5.2 percent each in the June and September quarters. The rate of price growth is expected to ease to 4.4 percent in the December quarter, then climb to 5.1 percent in the March quarter of 2022.

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