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RBI keeps lending rates unchanged
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SME Times News Bureau | 06 Aug, 2020
To curb the rise in inflation, and stabilise the general economic
environment, the Reserve Bank on Thursday retained its key short-term
lending rates, but maintained its growth-oriented accommodative stance.
The
Monetary Policy Committee of the central bank maintained the repo rate
-- or short-term lending rate for commercial banks, at 4 per cent.
Likewise,
the reverse repo rate stands unchanged at 3.35 per cent, and the
marginal standing facility (MSF) rate and the 'Bank Rate' at 4.25 per
cent.
It was expected that the Reserve Bank's MPC might hold
rates as recent data showed that retail inflation has been at an
elevated level during June.
The retail or consumer price index
stood at 6.09 per cent in June. The urban CPI stood at 5.91 per cent and
rural at 6.20 per cent. The RBI maintains a medium-term CPI inflation
target of 4 per cent. The target is set within a band of +/- 2 per cent.
In
an online address detailing the MPC decision, RBI Governor Shaktikanta
Das said the MPC was of the view that supply chain disruptions on
account of the Covid-19 pandemic persists, with implications for both
food and non-food prices.
"A more favourable food inflation
outlook may emerge as the bumper rabi harvest eases prices of cereals,
especially if open market sales and public distribution offtake are
expanded on the back of significantly higher procurement. Nonetheless,
upside risks to food prices remain," he said.
"The abatement of
price pressure in key vegetables is delayed and remains contingent upon
normalisation of supplies. Protein-based food items could also emerge as
a pressure point."
Besides, Das, in his address, pointed out
that higher domestic taxes on petroleum products have resulted in
elevated domestic pump prices and will impart broad-based cost push
pressures going forward.
"Taking into consideration all these
factors, the MPC expects headline inflation to remain elevated in
Q2:2020-21, but likely to ease in H2:2020-21, aided by favourable base
effects.
"Given the uncertainty surrounding the inflation
outlook and extremely weak state of the economy in the midst of an
unprecedented shock from the ongoing pandemic, the MPC decided to keep
the policy rate on hold, while remaining watchful for a durable
reduction in inflation to use available space to support the revival of
the economy."
On the growth front, Das said that real GDP growth is estimated to be negative during FY2020-21 as a whole.
"An
early containment of the Covid-19 pandemic may impart an upside to the
outlook. A more protracted spread of the pandemic, deviations from the
forecast of a normal monsoon and global financial market volatility are
the key do wnside risks," he said.
He was of the view that the world may face a second wave of the novel coronavirus as economic activities open up.
"World is bracing for a second wave of pandemic as economies open up," Das said.
Commenting
on the monetary policy announcement, SBI Chairman Rajnish Kumar, who is
also the Chairman, IBA, said: "The Reserve Bank of India's monetary
policy statement draws a fine balance between the challenges posed due
to Covid-19 pandemic shock and the need to support growth and financial
stability."
Suman Chowdhury, Chief Analytical Officer, Acuite
Ratings & Research, said: "MPC's decision to hold on to the existing
rates appears to stem from its belief that the short term inflation
outlook will be uncertain due to supply constraints and cost-push
factors."
"While the repo rates are almost close to the bottom,
we believe there is a possibility of another round of 25-50 bps of a
rate cut over the next 6 months."
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Customs Exchange Rates |
Currency |
Import |
Export |
US Dollar
|
84.35
|
82.60 |
UK Pound
|
106.35
|
102.90 |
Euro
|
92.50
|
89.35 |
Japanese
Yen |
55.05 |
53.40 |
As on 12 Oct, 2024 |
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