First RBI Monetary Policy after Union Budget 2021 today: Here's what to expect

Under the current dispensation, the RBI has been mandated by the government to maintain retail inflation at 4 per cent with a margin of 2 per cent on either side. The inflation target has to be reviewed by end-March 2021. The MPC kept the key benchmark rate unchanged in its last three reviews.

New Delhi: The Reserve Bank of India is all set to announce the Monetary Policy on Friday and is likely to hold interest rates and continue with accommodative policy stance.

This is the first monetary policy announcement after the presentation of the Union Budget 2021-22.

The Reserve Bank's rate-setting Monetary Policy Committee (MPC) began its meeting on Wednesday. The six-member MPC headed by RBI Governor Shaktikanta Das has started its deliberations. After the three-day meeting, resolution of the MPC would be announced today (February 5).

The MPC kept the key benchmark rate unchanged in its last three reviews. The current repo rate -- rate at which RBI lends to banks -- is at a record low of 4 per cent. The reverse repo rate -- rate for funds parked by banks with RBI -- is 3.35 per cent.

The RBI had last revised its policy rate on May 22, 2020, in an off-policy cycle to perk up demand by cutting interest rate to a historic low. The central bank has cut policy rates by 115 basis points since February last year.

India's economy is likely to rebound with a 11 per cent growth in the next financial year as it makes a "V-shaped" recovery after witnessing a pandemic-led carnage, as per the Pre-Budget Economic Survey tabled in Parliament.

The Gross Domestic Product (GDP) is projected to contract by a record 7.7 per cent in the current fiscal ending March 31, 2021.

CPI inflation eased sharply in December primarily on account of a substantial correction in food inflation -- by 5 percentage points -- to 3.9 per cent in December from 8.9 per cent in November.

Under the current dispensation, the RBI has been mandated by the government to maintain retail inflation at 4 per cent with a margin of 2 per cent on either side. The inflation target has to be reviewed by end-March 2021.

The government will borrow Rs 12.05 lakh crore from the market in 2021-22, lower than the Rs 12.80 lakh crore estimated for the current financial year.

With PTI Inputs