RBI’s Monetary Policy Committee (MPC) refrains from slashing repo rate and maintains an accommodative stance. However, the growth forecast for 2020-21 has been increased to 6 per cent.
The Reserve Bank of India (RBI) on Thursday kept the key repo rate unchanged 5.15 per cent in its first monetary policy review after Budget 2020-21.
The six-member Monetary Policy Committee (MPC) maintained an accommodative stance in the sixth bi-monthly policy meet of 2019-20. It estimated a 6 per cent GDP growth rate for 2020-21 while projecting a 6.2 per cent growth rate for Q3FY21.
The central bank said it will maintain an accommodative stance for as long as it is required to revive the economy. The committee also said that the economy continues to remain weak and the output gap is negative.
All six members of Monetary Policy Committee voted in favour of maintaining status quo on the key interest rate. RBI’s MPC was widely expected to keep rates unchanged due to rising inflationary rate and slow transmission of already announced interest rate cuts.
As far as inflation is concerned, RBI anticipated it to remain elevated in the short-run and that it remains “highly uncertain”. It has revised the CPI inflation projection for Q4 of 2019-20 to 6.5 per cent and 5.4-5 per cent in the first six months of 2020-21 and 3.2 per cent in the third quarter of 2020-21.
Commenting on the February policy review, RBI Governor Shaktikanta Das said the repeat of status quo in monetary policy should not be seen as future policy action and it has several instruments at its command to tackle present economic challenges.
Explaining why the MPC chose to maintain status quo, Das listed some points. He said global economic activity has not improved since the last bi-monthly policy review meeting.
He also listed problems such as higher global inflation on the increasing demand for food prices apart from domestic issues like falling production and import of high-frequency capital goods, which are two key indicators of investments.
Das, however, listed several positives as well. Improvement of industrial activity, better core industry performance and higher rabi sowing are some of them. But weak demand continued to affect key sectors like manufacturing in quarter 3 of 2019-20 though sentiment has improved, as far as the RBI’s monetary policy statement.
Source: India Today