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India Holds Key Rates As Inflation Remains Elevated

rbi 040617 04dec20 lt

India's central bank left its key interest rates unchanged on Friday, for the third straight meeting as elevated inflation provided little space for policy maneuver that is needed to support the economy hit hard by the coronavirus pandemic.

The Monetary Policy Committee, led by Governor Shaktikanta Das, voted unanimously to maintain the policy repo rate at 4.00 percent. The reverse repo rate was retained at 3.35 percent.

The Marginal Standing Facility, or MSF rate, and the Bank rate were also left unchanged at 4.25 percent.

The last change in the benchmark rate was a 40 basis point cut in May, which took the cumulative reduction since February 2019 to 250 basis points.

The six-member committee 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.

After the three-day meeting, Das said inflation is likely to remain elevated constraining monetary policy at the current juncture from using the space available to act in support of growth.

Consumer price inflation is projected at 6.8 percent in the December quarter of 2020 and 5.8 percent in the next quarter.

Inflation is seen between 5.2 percent and 4.6 percent in the first half of the financial year 2021-22, with the risk broadly balanced.

India's economic contraction slowed to 7.5 percent in the September quarter, but economy entered a technical recession for the first time ever.

The central bank projected real GDP to fall 7.5 percent in the financial year 2020-21 versus the previous forecast of a 9.5 percent contraction.

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