In line with the expectations in the announcement from the Monetary policy review, the Reserve Bank of India has kept the policy rates unchanged on Friday. MPC of the view that inflation likely to remain elevated though some relief could be seen in winter months from prices of perishable and bumper Kharif arrival, said Shaktikanta Das, RBI Governor. Also Read: Indian Economy Heading For A ‘V- Shaped’ Recovery, Says Finance Ministry
The repo rate unchanged at 4% while reverse repo rates remain unchanged at 3.35%.
“The year 2020 has remained extremely challenging. It has tested and stressed our capabilities and even our inner reserves of strength and patience,” said Shaktikanta Das.
Key Updates From RBI’s Monetary Policy Committee Review
- RTGS system will soon be made 24×7 in the next few days
- Inflation due to supply chain disruptions. The outlook for inflation has turned adverse relative to indications last two months.
- The MPC sees the inflation at 6.8% for Q3 (September-December) and 5.8% for Q4.
- To enhance limits for contactless card payments from ₹2000 to ₹5000 from Jan 2021.
- RBI proposes to put in place criteria for NBFC dividend distribution, introduces risk-based audit in large NBFCs & co-op banks.
- Financial sector entities like banks and NBFCs should give the highest priority to the quality of governance, risk management, and internal controls
- Commercial and co-operative banks will retain profits earned & will not give out dividends for FY21
- On-tap TLTRO will be expanded to cover other stressed sectors in tandem with the ECLGS scheme
- Urban demand gaining momentum. Positive economic indications clouded by a rise in infections in a few parts of the country
- GDP growth for 2021 is projected at -7.5%. Recovery in rural demand to strengthen further. Accommodative stance to remain through the current financial year.
- Projection for H2FY21 is positive +0.1% for Q3 against -5.6% earlier and +0.7% for Q4 against +0.5% earlier. Real GDP growth for FY21 projected at -7.5%
Inflation has remained consistently above the upper end of RBI’s mandated 2%-6% target range every month barring March this year while core inflation has also remained sticky. In fact, the minutes of the RBI’s Monetary policy committee meeting in October had indicated the rate-setting panel is more concerned about the sluggishness in economic growth than high inflation and will look for room for rate cuts if inflation eases to support growth.
However, economists felt the committee will keep policy rates unchanged despite the persistent rise in inflation and strong bounce back in recovery. The Indian economy has officially entered a technical recession, with two consecutive quarters of negative growth in the gross domestic product (GDP).
Real GDP for the September quarter contracted 7.5 per cent year-on-year, on the back of the steep contraction in manufacturing, construction, and services, data released by the National Statistical Office showed on November 27. However, the data also indicated the country is on the way to gradual recovery following the nationwide lockdown in April, May, and June which had flatlined the economy.