The Reserve Bank of India on Friday kept the benchmark interest rate unchanged at 4 per cent and going forward decided to withdraw its accommodative stance to ensure that inflation remains within the target level.
Retail inflation is hovering above the RBI's upper tolerance level for the past couple of months.
It was 6.07 per cent in February and 6.01 per cent in January, mainly due to an uptick in food prices.
This is the 11th time in a row that the Monetary Policy Committee (MPC) headed by RBI Governor Shaktikanta Das has maintained the status quo.
The central bank had last revised its policy repo rate or the short-term lending rate on May 22, 2020, in an off-policy cycle to perk up demand by cutting the interest rate to a historic low.
The MPC, based on its assessment of the macroeconomic situation and outlook, voted unanimously to keep the policy repurchase (repo) rate unchanged at 4 per cent, Das said while announcing the bi-monthly monetary policy review.
The committee also decided unanimously to remain accommodative while focusing on withdrawal of its current stance to ensure that inflation remains within the target band going forward, he said.
Consequently, the reverse repo rate will continue to earn 3.35 per cent interest for banks for their deposits kept with the RBI.
Das further said the marginal standing facility, MSF rate and bank rate, remain unchanged at 4.25 per cent.
The RBI slashed the growth projection for the current fiscal to 7.2 per cent from 7.8 per cent earlier; while raising the inflation forecast to 5.7 per cent from 4.5 per cent.
The MPC has been given the mandate to maintain annual inflation at 4 per cent until March 31, 2026, with an upper tolerance of 6 per cent and a lower tolerance level of 2 per cent.
The bi-monthly policy comes against the backdrop of the Budget wherein a nominal gross GDP of 11.1 per cent has been estimated for 2022-23.
The government expects this growth to be fuelled by a massive capital spending programme outlined in the Budget with a view to crowd-in private investment by reinvigorating economic activities and creating demand.
Finance Minister Nirmala Sitharaman raised capital expenditure (capex) by 35.4 per cent for the financial year 2022-23 to Rs 7.5 lakh crore to continue the public investment-led recovery of the pandemic-battered economy.
The capex in the current financial year is pegged at Rs 5.5 lakh crore.
The spending on building multi-modal logistics parks, metro systems, highways, and trains is expected to create demand for the private sector as all the projects are to be implemented through contractors.