RBI MPC meet outcome: RBI keeps key policy rates unchanged, maintains ‘accommodative’ stance

RBI MPC meet outcome: RBI keeps key policy rates unchanged, maintains ‘accommodative’ stance

Mumbai: The Reserve Bank of India’s (RBI) newly-appointed Monetary Policy Committee (MPC), on Friday, voted unanimously to keep key rates unchanged.

RBI Governor Shaktkanta Das said the central bank will maintain an ‘accommodative’ stance “as long as necessary” to support the pandemic-battered economy going ahead. Benchmark lending rates, repo and reverse repo continue to be at 4% and 3.35% respectively.

It is to be noted that high-inflationary expectations in the near-term left the central bank little room for further cuts. The repo rate, currently at their lowest since 2000, has already been cut by 115 bps (100 bps=1%) since March and 250 bps since March 2019.

The MPC outcome is in line with ET Now’s poll of economists which had expected status-quo to be maintained with scope for rate cuts ahead in the year as inflationary pressure recedes.

RBI on growth

Das also said the central bank expects real GDP in the financial year 2020-21 to decline by 9.5%, stating the economy is entering a “decisive phase”. RBI expects GDP to break out of contraction and change to positive by the fourth quarter of FY21.

Commenting on the shape of recovery, Das said: “There has been debate on the shape of the recovery, whether it will be V, U, L, or W. In my view it is likely to be a three-speed recovery with the individual sector showing varying paces”.

“Deep contraction of Q1 FY21 is behind us. (The) rural economy looks resilient. Global financial conditions continue to remain benign. Mood shifting from fear and despair to hope. “By all indications, the contraction of 2020-21 is behind us and focus should shift from containment to revival,” the Governor added.

On inflation

The central bank MPC has decided to “look through the current inflation as a transient hump”.

It is to be noted MPC’s inflation-targeting framework, which is mandated to keep it within 4% with a tolerate limit of 2% on either side, has a tough task ahead as retail inflation rose further above RBI’s medium-term target as food prices increased owing to supply disruptions. Consumer Price Index (CPI) inflation or retail inflation for August 2020, was recorded at 6.69%..

“We expect retail inflation to remain elevated in September and expect ease over Q3 and Q4. Aggregate demand remains subdued,” Das said.

The three-day MPC meet which was earlier scheduled to be held during September 29-October 1, 2020 was postponed owing to delay in appointment of external members to the MPC after the term of previous three committee members ended. Centre appointed Shashanka Bhide, Jayanth Varma and Ashima Goyal to the vacant positions for a period of four years.