Why RBI kept interest rates Unchanged?

Source- The Hindu

Syllabus- GS 2 – Government policies and interventions for development in various sectors and issues arising out of their design and implementation.

Synopsis- Monetary Policy Committee [MPC] has kept the benchmark interest rates unchanged. It is proceeding with an accommodative stance of monetary policy.

Introduction

• MPC is keeping the rates unchanged to sustain the present economic growth.
• There are many factors that are providing space to MPC for keeping an accommodative stance of monetary policy.

What are the factors behind not changing the policy rates?

• First, retail inflation has been reduced in December, below the RBI’s upper tolerance threshold of 6%.
• Second, while the economy is on the path of revival, it still needs support from every angle.
• Third, the COVID-19 vaccine and budget proposal for infrastructure are boosting confidence in the economy.

What are the concerns for growth and inflation dynamics?

• Farmer’s agitation- The agitation involves farmers from key crop-growing States including Punjab, Haryana, and U.P. is a cause for concern. Prolong agitation has the potential to disrupt farm output.
• The Centre alone borrow 12-lakh crore at the gross level in the coming financial year, the debt manager faces the difficult task.

Steps taken by the Central Bank as the government’s debt manager –

• The enhanced held-to-maturity (HTM) limit for banks was extended till March 31, 2023. The facility would be provided to the banks buying debt issued by the Centre and States.
• Allowing retail investors to buy G-Secs [government securities] directly through the Reserve Bank [Retail Direct].

Way forward-

• The vaccine campaign would boost the economic turnaround, the budget proposals and expenditure plans have raised hopes for a more robust recovery.
• The RBI needs to keep its focus over inflation as the interest rates are too low. It may boost the consumption in the near future.