(RTTNews) – The Reserve Bank of India unchanged its key interest rates on Thursday, challenging expectations of a quarter-point cut as it tries to engage inflation after the economy began to show signs of slow recovery as companies began to open. following the reduction of blocking restrictions to combat the coronavirus pandemic.
However, India’s central bank has stated that the economic outlook remains highly doubtful as the increasing number of Covid-19 cases helps keep the risk of a wave of infections alive.
The financial policy committee, headed by Governor Shaktikanta Das, unanimously to keep the repos rate unchanged at 4%, the central bank said in a statement.
The opposite buyback rate remained solid at 3.35% and the permanent marginal ease rate and rate at 4.25%.
“The MPC has also taken the decision to maintain an accommodative position as long as it is mandatory to revive expansion and mitigate the effect of COVID-19 on the economy, while ensuring that inflation stays within target,” the bank said.
“Given the uncertainty surrounding the outlook for inflation and the incredibly weak state of the economy amid an unprecedented surprise of the existing pandemic, it is prudent to pause and pay attention to incoming knowledge about how the outlook is developing,” the bank said.
Policymakers have made the decision to keep the key interest rate and remain alert to sustainable inflation relief in order to use the area available for the economy’s recovery, the RBI said.
On Thursday, the RBI will also provide a window for lenders to implement a solution plan for eligible borrowers.
The central bank targets CPI inflation of 4% in a 2% diversity. The statistics office released the general CPI figures for April and May, and brought out the pandemic disorder.
“With the worsening prospects for expansion amid the continued spread of coronavirus and inflation on the brink of relaxation, the relaxation cycle will still have to continue,” said Shilan Shah, an economist at Capital Economics.
The company expects relief of 50 basis points before the end of the year, and more so if the economic outlook deteriorates further.
In May, the RBI reduced the repurchase rate through basis points. Since February 2019, the bank has reduced the cumulative rate by 250 basis points.
The central bank expressed fear of the outbreak of new infections that have forced stricter blockades in several cities and states.
“We will continue to watch and watch and do anything to revive the economy and maintain monetary stability,” Das said.
The bank expects overall inflation to remain high in the September 2020-2021 quarter and value pressures will fall at the time of the year, thanks to strong positive unders and backing effects.
The growing danger to food costs remains, while the inflation outlook for non-food categories is full of uncertainty, the RBI said.
Real GDP expansion is expected to be negative by 2020-2021 as a whole, the bank said.
Early containment of the COVID-19 pandemic may give credit to the prospects, the RBI said.
Longer spread of the pandemic, deviations from monsoon forecasts, and volatility in global money markets are the main risk problems, the bank added.
The recovery of the rural economy is expected to be physically powerful due to a greater agricultural outlook and production situations are expected to gradually increase in the coming quarters as domestic demand strengthens.
The external call is expected to be anemic, the central bank said, bringing up the global recession and the decline in world trade.