RBI retains lending rates, maintains accommodative stance

Persistently high inflation fanned in part due to supply side disruptions along with seasonal factors led the Reserve Bank of India to maintain the key lending rates.

Accordingly, the Monetary Policy Committee of the central bank in its penultimate meet for 2020, decided to maintain the repo rate -- or short-term lending -- rate for commercial banks, at 4 per cent.

Besides, the reverse repo rate stands unchanged at 3.35 per cent, and the marginal standing facility (MSF) rate and the 'Bank Rate' at 4.2 per cent.

The MPC voted to maintain accommodative stance, thus opening up possibilities for more future rate cuts.

It was broadly expected that the RBI's MPC might hold rates as recent data showed that retail inflation has been at an elevated level during June.

"The MPC evaluated domestic and global macroeconomic and financial conditions and voted unanimously to leave the policy repo rate unchanged at 4 per cent," RBI Governor Shaktikanta Das said.

"It also decided to continue with the accommodative stance of monetary policy as long as necessary -- at least during the current financial year and into the next year -- to revive growth on a durable basis and mitigate the impact of Covid-19, while ensuring that inflation remains within the target going forward."

According to Das, India's economy is entering into a decisive phase in the fight against the pandemic.

He cited that relative to pre-Covid levels, several high frequency indicators are pointing to the easing of contractions in various sectors of the economy and the emergence of impulses of growth.

"By all indications, the deep contractions of Q1:2020-21 are behind us; silver linings are visible in the flattening of the active caseload curve across the country," Das said.

"Barring the incidence of a second wave, India stands poised to shrug off the deathly grip of the virus and renew its tryst with its pre-Covid growth trajectory."