The first meeting of the reconstituted Monetary Policy Committee (MPC) unanimously chose to keep the policy rate, or repo rate, unchanged at 4%. The highlight of the meeting are decisions that were taken by the RBI separately on liquidity measures and also the central bank’s first projection of economic growth for 2020-21 after the outbreak of Covid-19.
RBI forecast that the economy this year will contract by 9.5%, with risks titled to the downside. Recovery, according to the central bank, will be “three-speed”. In other words, the pace of recovery will depend on how quickly sectors emerged out of the lockdown. The quickest to recover will be sectors such as agriculture and fast moving consumer goods.
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Also read: Repo rate unchanged at 4%; GDP to contract by 9.5% in current FY, RBI governor announces
In response to its anticipation of an unprecedented plunge in economic activity this year, RBI opened its liquidity tap further. Banks now have an array of options to borrow from RBI and on-lend to businesses. RBI has consistently pushed its liquidity measures. But for them to realise their potential, the government may need to announce a supporting fiscal policy.
