New Delhi: The Reserve Bank of India (RBI) kept the key policy rate unchanged, as widely expected, at 5.15 per cent and decided to continue with its accommodative stance to support the economy on Thursday (February 6), many economists mentioned, as retail inflation is above target and the economy has shown green shoots of revival from its worst slump in more than a decade.
Last year, the apex bank’s six-member monetary policy committee (MPC) under Governor Shaktikanta Das slashed rates by 135 basis points over five successive meetings, before pressing the pause button in December by holding the policy repo steady at 5.15 per cent primarily because of growing worries over inflation.
All six committee members voted in favour of keeping rates steady for a second time.
The central bank said overall the inflation outlook remains highly uncertain. “Accordingly, the MPC will remain vigilant about the potential generalisation of inflationary pressures as several of the underlying factors cited earlier appear to be operating in concert,” the RBI said in its sixth bi-monthly monetary policy for this fiscal.
The apex bank also raised its retail inflation forecast for March quarter to 6.5 per cent and for the first half of FY21 to 5-5.4 per cent. The RBI pegged GDP growth at 6 per cent during the next financial year.
It is worth mentioning here that the Economic Survey, tabled in Parliament on January 31, estimated the GDP growth during FY21 at 6-6.5 per cent.
“Private consumption, particularly in rural areas, is expected to recover on the back of improved rabi prospects. The recent rise in food prices has shifted the terms of trade in favour of agriculture, which will support rural incomes,” the RBI said.
The breakout of the coronavirus in China may, however, impact tourist arrivals and global trade “Equity markets rallied across advanced economies and emerging market economies, turning bearish towards end-January with the outbreak of coronavirus as markets braced up for the likely adverse impact on growth prospects, particularly in China,” it said.
Rate sensitive stocks such as banks gained after RBI’s policy decision. The Nifty Bank, NSE’s sub-index for banks, is up 1 per cent led by gains in SBI, Axis Bank, PNB and Bank of Baroda. The Sensex, meanwhile, gained over 200 points to trade at 41,369 as compared to intraday low of 41,113.11.