RBI MPC votes to keep key rates unchanged, maintains accommodative stance

The Reserve Bank of India Monetary Policy Committee on Friday voted to keep key rates unchanged and maintained an accommodative stance, announced Governor Shaktikanta Das. With this repo rate stays at 4.0% while reverse repo rate stays at 3.35%

"Mood of the nation has shifted to confidence & hope," said Shaktikanta Das adding that the GDP growth may turn positive by Q4FY21. There is an expectation of triple-speed recovery in economic activity, however, real GDP is expected to decline by 9.5%. He said that focus must shift from containment to reviving the economy.

In a Business Standard poll, all the 10 participants, comprising economists and bank treasurers had expected the RBI to pause.

Most observers said the reason for more rate cuts, at least in this calendar year, has ended for the RBI. The MPC can take a view only after seeing the budget math and the fiscal deficit numbers. Any rate cuts now will also not add much of a value, considering the transmission of the past cuts has not happened.

The announcements made by Governor Shaktikanta Das comes over a week after the MPC meeting was postponed due to delay in the appointment of external MPC members.

Late Monday, the government named Jayanth Varma, professor at the Indian Institute of Management, Ahmedabad; Ashima Goyal, member of the prime minister’s Economic Advisory Council; and Shashanka Bhide, senior advisor at the National Council of Applied Economic Research as external members of the MPC.

The MPC was originally scheduled to meet on September 29, September 30, and October 1, but the new members were not named then. While the new members are domain experts, at the RBI they will get to see more granular data than what is put out for the public. Therefore, economists say, they are unlikely to assert themselves in the first meeting and would like to go with a status quo policy.

The three posts had remained vacant after Pami Dua, Chetan Ghate, and Ravindra Dholakia demitted office on September 22. They had technically left their positions after the August monetary policy meeting, but the government delayed naming their successors.

All eyes were also on the RBI monetary policy — not for any action in terms of a rate cut but for the central bank’s assessment of the GDP growth for the current year. So far, it had refrained from giving any projection. The official reason for this is the uncertainty surrounding the Covid-19 pandemic and its impact on the economy. GDP dived 23.9 per cent in the second quarter from a year earlier making India the worst performance in Asia.