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.
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