RBI Monetary Policy LIVE Updates: Global economic activity has remained fragile in H12020, says Shaktikanta Das
RBI Monetary Policy LIVE Updates: The Reserve Bank of India’s Monetary Policy Committee (MPC) has kept the repo rate unchanged at 4% amidst COVID-19
RBI Monetary Policy LIVE Updates: The Reserve Bank of India (RBI)'s Monetary Policy Committee (MPC) has kept the repo rate unchanged at 4 percent, amid rising inflationary pressure and a grim economic outlook. RBI Governor Shaktikanta Das said that the real GDP growth will remain negative in FY21.
The MPC had convened for this three-day meeting on August 4. About 50 percent of the economists had expected a rate cut while the rest expected a pause in repo rates. In 2020, the MPC has already slashed the repo rate by 115 bps amid the COVID-19 outbreak and consequent economic fallout.
Here are the five key takeaways from the RBI Monetary Policy:
--Repo rate: The repo rate has been kept unchanged at 4 percent. Consequently, the reverse repo rate under the LAF remains unchanged at 3.35 percent and the marginal standing facility (MSF) rate and the bank rate at 4.25 percent.
--Growth: Amidst the Coronavirus outbreak, RBI governor Shaktikanta Das has said that for FY21 as a whole, real GDP growth is expected to be negative. He added that an early containment of the COVID-19 pandemic may impart an upside to the outlook.
--Inflation: RBI governor Shaktikanta Das said that headline inflation may remain elevated in Q2FY21, but may moderate in the second half of the year (H2FY21) aided by large favourable base effects.
--Restructuring of loans: Amidst cash flow disruption due to COVID-19, RBI will allow stressed MSME borrowers to restructure their debt under the existing framework, provided their accounts with the concerned lender were classified as standard as on March 1, 2020. But this restructuring will have to be implemented by March 31, 2021.
--Special liquidity facility: RBI governor Shaktikanta Das said that an additional special liquidity facility of Rs 10,000 crore will be provided atthe policy repo rate to National Bank for Agriculture and Rural Development (NABARD) and National Housing Bank (NGB). This will consist of Rs 5,000 crore to NHB to shield the housing sector from liquidity disruptions and augment the flow of finance to the sector through housing finance companies (HFCs). There will also be Rs 5,000 crore to the to reduce the stress being faced by smaller non-bank finance companies (NBFCs) and micro-finance institutions in obtaining access to liquidity.
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"Today’s lack of a rate cut from the RBI - similar to the December 2019 MPC meeting - once again establishes the primacy of inflation over growth, no matter what the extent of the economic downturn. Clearly, inflation being within the forecast range is a necessary condition for easing, and given the supply disruptions, especially in food, it may prove to be difficult for the RBI to resume easing for some time, from an inflationary point of view," Barclays said in a note.
"In the MPC’s assessment, global economic activity has remained fragile and in retrenchment in the first half of 2020. A renewed surge in COVID-19 infections in major economies in July has subdued some early signs of revival that had appeared in May and June. Global financial markets, however, have been buoyant, with the return of risk-off sentiment inserting a disconnect from the underlying state of the real economy." Shaktikanta Das said.
"For the year 2020-21, as a whole, real GDP growth is expected to be negative. An early containment of the COVID-19 pandemic may impart an upside to the outlook. A more protracted spread of the pandemic, deviations from the forecast of a normal monsoon and global financial market volatility are the key downside risks," the MPC said in its statement.
Speaking to CNBC-TV18, State Bank of India (SBI) Chairman Rajnish Kumar said "The policy ticks all boxes and that RBI and the govt are providing necessary support to the financial system."
Mixed bad for outlook RBI governor Shaktikanta Das said that MPC noted that the recovery of the rural economy is expected to be robust, buoyed by the progress in kharif sowing. He added that the manufacturing firms expect domestic demand to recover gradually from Q2 and to sustain through Q1FY22. On the other hand, Das said that consumer confidence turned more pessimistic in July relative to the preceding round of the Reserve Bank’s survey.
RBI policy meeting: When it comes to dispute resolution, RBI Governor Shaktikanta Das on August 6 announced introduction of an online dispute resolution (ODR) mechanism for digital payments. In a statement following the Monetary Policy Committee (MPC) meeting, Das said, "A scheme of retail payments in offline mode using cards and mobile devices, and a system of on online dispute resolution (ODR) mechanism for digital payments will also be introduced."