Home Economy No change in repo rate: RBI

No change in repo rate: RBI

by BQ News Bureau
0 comment 24 views

On the basis of an assessment of the current and evolving macroeconomic situation, the Monetary Policy Committee (MPC) of the Reserve Bank of India on Friday decided to keep the policy repo rate under the liquidity adjustment facility (LAF) unchanged at 4.0 per cent.

Consequently, the reverse repo rate under the LAF remains unchanged at 3.35 per cent and the marginal standing facility (MSF) rate and the Bank Rate at 4.25 per cent.

Addressing the media on the recommendations of the MPC, RBI Governor Sakthikanta Das said that the MPC also decided to continue with the accommodative stance as long as necessary – at least during the current financial year and into the next financial year – to revive growth on a durable basis and mitigate the impact of COVID-19 on the economy, while ensuring that inflation remains within the target going forward.

These decisions are in consonance with the objective of achieving the medium-term target for consumer price index (CPI) inflation of 4 per cent within a band of +/- 2 per cent while supporting growth, the RBI Governor said.

According to the RBI, incoming data point to a recovery in global economic activity in Q3 of 2020 in sequential terms. Global trade is expected to be subdued. The rebound could turn out to be stronger among advanced economies (AEs) than in emerging market economies (EMEs). Soft fuel prices and weak aggregate demand have kept inflation below target in AEs, although in some EMEs, supply disruptions have imparted upward price pressures.

On the domestic front, high-frequency indicators suggest that economic activity is stabilising in Q2:2020-21 after the 23.9 per cent year-on-year decline in real GDP in Q1 (April-June). The outlook for agriculture is robust.

Domestic financial conditions have eased substantially, with systemic liquidity remaining in large surplus. Reserve money increased by 13.5 per cent and growth in money supply was contained at 12.2 per cent as on September 25. Banks’ non-food credit growth remains subdued. India’s foreign exchange reserves stood at US$ 545.6 billion on October 2.

Turning to the outlook for inflation, Kharif sowing portends well for food prices. Pressures on prices of key vegetables like tomatoes, onions and potatoes should also ebb by Q3 with Kharif arrivals. On the other hand, prices of pulses and oilseeds are likely to remain firm due to elevated import duties.

Turning to the growth outlook, the recovery in the rural economy is expected to strengthen further. Manufacturing firms expect capacity utilisation to recover in Q3:2020-21 and activity to gain some traction from Q4 onwards. Both private investment and exports are likely to be subdued. Taking into consideration the above factors and the uncertain COVID-19 trajectory, real GDP growth in 2020-21 is expected to be negative at (-)9.5 per cent, with risks tilted to the downside: (-)9.8 per cent in Q2:2020-21; (-)5.6 per cent in Q3; and 0.5 per cent in Q4.

Leave a Comment

Related Posts