The Union Budget 2021-22 has introduced several measures to provide an impetus to growth, and the projected increase in capital expenditure augurs well for capacity creation thereby improving the prospects for growth and building credibility around the quality of expenditure, the Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) has said.
“The recovery, however, is still to gather firm traction and hence continued policy support is crucial. Taking these developments into consideration, the MPC in its meeting today decided to continue with an accommodative stance of monetary policy till the prospects of a sustained recovery are well secured while closely monitoring the evolving outlook for inflation,” the MPC said in its Monetary Policy Statement.
On the basis of an assessment of the current and evolving macroeconomic situation, the MPC decided to keep the policy repo rate under the liquidity adjustment facility (LAF) unchanged at 4.0 per cent.
Consequently, the reverse repo rate under the LAF would remain unchanged at 3.35 per cent and the marginal standing facility (MSF) rate and the Bank Rate at 4.25 per cent.
The MPC also decided to continue with the accommodative stance as long as necessary – at least during the current financial year and into the next financial year – to revive growth on a durable basis and mitigate the impact of COVID-19 on the economy, while ensuring that inflation remains within the target going forward.
“These decisions are in consonance with the objective of achieving the medium-term target for consumer price index (CPI) inflation of 4 per cent within a band of +/- 2 per cent, while supporting growth,” the statement said.
On the outlook for the Indian economy, MPC said that the Union Budget 2021-22, with its thrust on sectors such as health and well-being, infrastructure, innovation and research, among others, should help accelerate the growth momentum. Taking these factors into consideration, real GDP growth is projected at 10.5 per cent in 2021-22 – in the range of 26.2 to 8.3 per cent in H1 and 6.0 per cent in Q3.
