Does RBI keeps repo rate at 4%, pegs GDP at 10.5%?

 

The Repo rate is the rate at which commercial banks borrow money by selling their securities to the Central Bank of India, i.e. the Reserve Bank of India (RBI), to preserve liquidity in the event of a lack of funds or due to such statutory steps. It is one of RBI's key instruments to keep inflation under check. 

When you borrow money from the bank, the transaction will attract interest on the principal sum. This is referred to as the expense of the loan. Likewise, banks often borrow money from RBI during a cash crunch for which they are expected to pay interest to the Central Bank. This rate of interest is known as the currently prevailing repo rate.

Technically, repo stands for 'Repurchase Option' or 'Repurchase Arrangement.' It is an arrangement in which banks supply RBI with qualifying securities, such as treasury bills while offering overnight loans. A deal to repurchase them at a set price would still be in effect. The bank, however, collects the cash and the security of the central bank.

On Friday, the Reserve Bank of India (RBI) kept the repo rate and the repo rate unchanged at 4 per cent and 3.35 per cent, thus maintaining the accommodative stance. The Indian economy is primed to step in only one direction, and that's upward, Das said. It is our firm confidence, backed by projections, that in 2021-22 we will reverse the harm that Covid-19 has done on the economy. 

He stated that the actual GDP growth is expected to be around 10.5 per cent in 2021-22—26.2 to 8.3 per cent in H1 and 6 per cent in the third quarter. RBI Governor Shaktikanta Das said after a three-day meeting of the Monetary Policy Committee (MPC) which addressed current and emerging macroeconomic and financial trends, the marginal fixed facility rate and the bank rate remained unmodified at 4.25%. 

He said that the Union budget 2021-22 offered a good boost for the revival of sectors such as health and well-being, infrastructure, innovation and science. This will have a cascading multiplier impact on the future, particularly in improving the investment climate and boosting domestic demand, income and employment. 

That said, price stability is the cornerstone on which the economy will aspire to achieve its potential in a virtuous cycle of higher financial savings and expenditure; reduced volatility for companies in investment and pay decisions; reduced duration and risk premiums in financial markets; and improved external competitiveness. 

The Reserve Bank of India stands committed to ensure the availability of sufficient cash liquidity in the system and build favourable financial conditions for the economic recovery to gain traction and momentum," he said.

Das said the new year 2021 started on a strong optimistic note with vaccination drives in major economies as well as in India. While the year 2020 tested our nation’s capabilities and endurance, 2021 is setting the stage for a new economic era of development in the course of our history." 

The governor of the RBI said that institutional investors would now engage directly in government securities. This measure will broaden the investor base and provide retail investors with improved access to participate in the government securities market and book profits. This is a major structural economic reform that places India among select few countries which have similar facilities, he added, adding that further information will be released later.

The Centre and the RBI have taken a variety of steps to promote retail investment in government securities. This involves the implementation of non-competitive bidding in primary auctions, encouraging stock exchanges to channel primary transactions and allowing for a particular division of the retail sector in the secondary market, Das said. (ANI) (a)