RBI keeps pension rate at 4% amid Covid-19 surge, Real Estate News, ET RealEstate

MUMBAI | BENGALURU | NEW DELHI: The Reserve Bank of India (RBI) kept interest rates at historically low levels on Wednesday, as was widely expected, sticking to their accommodative monetary policy amid upside concerns COVID-19[female[feminine infections could derail the country’s nascent economic recovery.

The MPC voted unanimously to keep monetary policy unchanged for as long as needed to support growth, Governor Shaktikanta Das said, even as inflation in February hit its highest level in three months.

The RBI kept the repo rate either its key rate fixed at 4% and its repo rate or borrowing rate at 3.35% after monetary easing in recent years. It has reduced the pension rate by 115 basis points (bps) since March 2020 to mitigate the pandemic.

“The stance of monetary policy will remain accommodative until the prospects for a sustained recovery are well secured while closely monitoring the development of the inflation outlook,” Das said.

The world’s fifth-largest economy returned to growth in the three months ending December after suffering its worst recession on record last year.

But an upsurge in cases has prompted many state governments to resume coronavirus restrictions this week, fueling concerns about economic activity. India, which has the third highest number of coronavirus cases in the world, reported 115,736 new coronavirus infections on Wednesday.

“The recent surge in COVID-19 infections … adds uncertainty to the outlook for domestic growth amid tightening restrictions by some state governments,” Das said.

“In India, we are now better prepared to meet the challenges posed by this upsurge in infections,” he added.

The annual retail inflation rate hit a three-month high of 5.03% in February due to rising fuel prices and Das said the future course of inflation will depend critically on the monsoon progression. RBI has a mandate to keep retail inflation in the 2-6% range with 4% as a medium-term target.

The RBI, however, kept its GDP growth forecast for the new fiscal year at 10.5%, after contracting 7.5% in fiscal 2020/21, while raising its inflation projection to 5% for the Q4 2020/21, 5.2% for Q1 and Q2. of 2021/22.

“The MPC’s projections on GDP and CPI trajectories do not reflect the uncertainties created by the second wave of COVID infections and the use of brutal measures like lockdowns in many states,” Rupa Rege Nitsure said , Chief Economist at L&T Financial Services.

The blue chip NSE Nifty 50 index and the benchmark S&P BSE Sensex index rose after the central bank left kept key rates unchanged.

Das again reaffirmed that the liquidity of the banking system will continue to remain in excess even after meeting all the requirements of the financial market segments and productive sectors of the economy.

RBI also announced a program to acquire government securities in the secondary market, under which it would commit in advance to a certain specific amount of bond purchases in the open market.

RBI will buy Rs 1 trillion of bonds in the market during the April to June quarter under the new program, Das said.

“The exceptional announcement … provides a de facto timetable for bond purchases in FY22, as a counterweight to the heavy issuance pipeline,” said Radhika Rao, economist at DBS Bank.

Traders had been watching the borrowing schedule closely to see if it would help absorb the massive $ 12 trillion government borrowing program in 2021/22.

The government needs these funds to support its spending and ensure that the economy continues to stay on track for a strong recovery.

Gross domestic product rose 0.4% year-over-year in the October-December quarter of 2020 after declining 7.3% in July-September and 24.4% in April- June.