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    RBI August Monetary Policy: Central bank leaves repo rate unchanged; to remain 'vigilant against possibility of 3rd COVID wave'

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    RBI August Monetary Policy: Central bank leaves repo rate unchanged; to remain 'vigilant against possibility of 3rd COVID wave'

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    With no change this time as well, the repo rate currently stands at 4 percent. The reverse repo rate has been maintained at 3.35 percent.

    The Reserve Bank of India's (RBI) Monetary Policy Committee (MPC) kept the repo rate unchanged in the third bi-monthly policy meet for the financial year 2021-22, governor Shaktikanta Das said on Friday.
    With no change this time as well, the repo rate currently stands at 4 percent. The reverse repo rate has been maintained at 3.35 percent.
    The central bank has left the key rates unchanged for the seventh consecutive time amid uncertainty over the pace of economic recovery as concerns rise over the third wave of COVID-19.
    The MPC voted unanimously to keep policy rates unchanged. The central bank has maintained its policy stance at “accommodative” which could continue for as long as necessary to revive growth.
    Repo rate is the rate at which banks borrow money from the Reserve Bank while reverse repo rate is the rate at which RBI borrows from banks. Commercial banks borrow funds only if they witness a shortfall in their funds. The monetary policy committee of a country uses the reverse repo rate as a tool to control the money supply in the country.
    The announcement is in line with the Street's expectations as it was largely expecting a status quo. A CNBC-TV18 poll conducted among 10 economists from India’s top banks and brokerages showed status quo with all respondents saying RBI would continue with the existing rates.
    The MSF rate and bank rate remain unchanged at 4.25 percent.
    According to Das, the economic activity has broadly evolved along the MPC's expectations. However, he said that the RBI cannot afford to drop its guard and that it needs to remain vigilant against a possible third wave of the coronavirus pandemic.
    Monsoon has revived after a brief hiatus, Das said. The CPI inflation surprised on the upside in May but the price momentum moderated later, he added.
    The central bank said that the outlook for aggregate demand is improving but underlying conditions are still weak and more needs to be done to restore supply-demand balance in several sectors.
    According to RBI's assessment, the current inflation is transitory, and driven by supply-side factors. Inflation may remain close to the RBI's upper tolerance band until Q2FY22, said Das. The central bank sees CPI at 5.7 percent for FY22 vs 5.1 percent projected earlier. It expects Q2FY22 CPI inflation at 5.9 percent, Q3 FY22 at 5.3 percent and Q4 FY22 at 5.8 percent.
    Das added that a pre-emptive monetary policy response at this stage will kill the nascent recovery. He retained GDP growth projection at 9.5 percent for FY22. The Q1 FY22 GDP growth forecast has been revised to 21.4 percent vs 18.5 percent earlier. The Q2 FY22 GDP growth is seen at 7.3 percent vs 7.9 percent earlier and the Q3 FY22 GDP growth is seen at 6.3 percent vs 7.2 percent earlier. The Q4 GDP growth is expected at 6.1 percent vs 6.6 percent earlier.
    Das said that the RBI has announced more than 100 measures so far to curtail COVID impact and will continue to monitor the ones which are still under implementation. Among the additional measures announced today are extension of deadline for on-tap TLTRO scheme by 3 months until Dec 31, 2021, extension in MSF relaxation by another 3 months until Dec 31, 2021 and deferral of deadline for achieving financial parameters under Resolution Framework 1.0 to Oct 1, 2022.
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