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    RBI June Monetary Policy: MPC maintains status quo; repo rate unchanged at 4%

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    RBI June Monetary Policy: MPC maintains status quo; repo rate unchanged at 4%

    The Reserve Bank of India's (RBI) Monetary Policy Committee (MPC) kept the repo rate unchanged in the second 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 sixth consecutive time amid uncertainty over the pace of economic recovery as India continues its fight against 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 eight respondents saying RBI would continue with the existing rates.
    The MSF rate and bank rate remain unchanged at 4.25 percent.
    Impact on the economic activity is expected to be limited during the second wave of COVID, governor Das said, adding that normal monsoon and business resilience can provide tailwind to push recovery.
    However, rising crude oil and commodity prices are worsening pricing conditions, he acknowledged. According to the RBI, rising crude prices and higher logistic costs can push up prices. Power consumption, e-way bills, and rail freight showed some moderation, added Das.
    The real GDP growth for FY22 is now projected at 9.5 percent versus 10.5 percent earlier. Das said that there was a downside risk to rural demand due to the spread of COVD-19.
    The RBI now estimates real GDP growth of 18.5 percent in Q1FY22 as against 26.2 percent that was projected earlier. Q2 GDP growth is seen at 7.9 percent versus 8.3 percent earlier.
    However, the RBI increased its growth forecast for Q3 and Q4. It now estimates 7.2 percent growth in Q3 as against 5.4 percent earlier and 6.6 percent in Q4 as compared to 6.2 percent forecast earlier.
    According to Das, the upside risks to inflation come from persistence of infections.
    CPI inflation is projected at 5.1 percent for FY22 while it is retained at 5.2 percent for Q1 of FY22. The retail inflation is seen at 5.4 percent in Q2 versus 5.2 percent forecast earlier, at 4.7 percent in Q3 versus 4.4 percent forecast earlier and at 5.3 percent in Q4 versus 5.1 percent forecast earlier.
    Das said that the RBI will use "all instruments at its command to support economy". "The need of the hour is for policy support to exports," he added.
    The central bank decided to continue with preemptive liquidity support.
    Government Securities Acquisition Programme (G-SAP) 2.0 will be taken in the second quarter of 2021-22 worth Rs 1.2 lakh crore to support the market, Das said.
    Other important announcements include on tap liquidity window of Rs 15,000 crore for contact-intensive sectors like hotels and salons, special liquidity facility of Rs 16,000 crore to SIDBI to support MSMEs, and expansion of Resolution Framework 2.0 to include borrowers with exposures of up to Rs 50 crore.
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