The surprise in Thursday’s RBI monetary policy review was that there were no surprises. It kept policy rates unchanged and maintained an accommodative stance. Both were widely expected. Governor Shaktikanta Das didn’t say as much but implied that banks have ground to cover as only 162 bps out of the 250 bps repo rate reduction since February 2019 reached new borrowers.

He also patted himself on the back for all the liquidity measures that collectively brought down borrowing costs of commercial papers and company deposits to a two-decade low. Further, he assured continuity in liquidity management to ensure short-term rates remain stable, while chucking some loose change at Nabard and the National Housing Board to revive the stressed real estate sector and spur demand. 

Uncertainty due to Covid-19 has set both inflation and the GDP rates moving at an unidentifiable rhythm and hence Das decided that they are best left unestimated. We know fully well about the RBI’s forecasting woes, but it’s the policymaker’s job and though they might get it right or wrong, they are at least supposed to try. Perhaps in that spirit, Das warned that headline inflation will remain elevated this quarter, but will likely ease in the coming months, while the GDP will decidedly contract in FY21. Projections are crucial, but in their absence it’ll be interesting to see how the RBI sets policy rates in coming months. 

Finally, heeding requests, the RBI granted the regulatory talisman, aka loan restructuring, for corporate and personal loans giving a two-year moratorium and extension of loan tenure. Given the recent model misbehaviour of banks exploiting forbearance, Das did well laying ground rules this time. Only genuine borrowers can avail it, while sectoral filters will be fixed by the K V Kamath-led external committee. Banks have to make provisioning for restructured assets, though the amount is modest at 10%. Importantly, banks must make full disclosures laying bare their true asset quality unlike in the past. That said, the RBI must ensure these prudential norms are not diluted further to avoid the errors of history.