RBI Maintains Status Quo; Signals Further Easing To Kick-Start Growth

The Reserve Bank of India maintained status quo as policymakers await inflationary pressures to ease ahead of loosening policy further to underpin the economy that is severely hit by the coronavirus pandemic.

The newly constituted Monetary Policy Committee, led by Governor Shaktikanta Das, voted unanimously to maintain the policy repo rate at 4.00 percent, as widely expected.

The Marginal Standing Facility or MSF rate, and the Bank rate remained unchanged at 4.25 percent. The reverse repo rate was retained at 3.35 percent.

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

The MPC will continue with the accommodative stance of monetary policy as long as necessary, at least during the current financial year and into the next year, the RBI chief said.

The bank said it will wait to see the easing of inflationary pressures to use the space available for supporting growth further.

The committee observed that the accommodative stance is needed to revive growth on a durable basis and mitigate the impact of the Covid-19 on the economy, while ensuring that inflation remains within the target.

The relatively dovish tone of the statement, along with the dire growth outlook, the easing cycle will resume before long, Shilan Shah, an economist at Capital Economics, said.

Real GDP growth was expected to be negative at -9.5 percent for the current financial year ending March 2021, with risks tilted to the downside. Economic growth for the first quarter of 2021-22 was placed at 20.6 percent.

CPI inflation was projected at 6.8 percent for the second quarter of 2020-21. The RBI aims to achieve inflation of 4 percent within a band of +/- 2 percent.

For 2021-22, assuming a normalization of supply chains with the availability of effective vaccines against Covid-19, inflation is set to move in a range of 4.1-4.4 percent and real GDP to grow 10.1 percent, the bank said in its Monetary Policy Report.

The governor said the bank stands ready to undertake more measures as required to ensure liquidity and easy financing conditions.

The RBI unveiled a range of measures to improve liquidity. The bank decided to conduct on tap TLTRO for a total amount of INR 1 trillion for banks to invest in corporate bonds and debt instruments of specific sectors.

The bank will also conduct open market operations in State Development Loans as a special case during the current financial year.

The latest MPC meeting was originally scheduled to be conducted on October 1, but was postponed after the government failed to appoint three governors to the board.

Source: Read Full Article