RBI Predicts -9.5% GDP For 2020-21, Keeps Rates Unchanged: 10 Points

Three new external members in the panel voted in today's decision.

RBI Governor Shaktikanta Das has already promised more policy measures, if needed, to support the economy

Highlights

  • RBI's Monetary Policy Committee retains policy rates at existing levels
  • GDP may break out of COVID-19 contraction by Q4, says RBI Governor
  • India entering a decisive phase in fight against COVID-19, he adds
RBI Governor Shaktikanta Das said today that the country's economy is likely to contract 9.5 per cent in the current financial year, "with risks tilted to the downside", while maintaining a status quo on policy rates citing high inflation. The GDP may break out of the coronavirus-induced contraction and turn positive by the fourth quarter of 2020, Governor Das said. The Monetary Policy Committee - whose three new external members voted in today's policy action - unanimously favoured holding the repo rate at the existing 4 per cent, while retaining an "accommodative" stance - which rules out any hikes for the time being.

Here are 10 things to know:

  1. The Monetary Policy Committee kept the repo rate - or the key interest rate at which it lends short-term funds to commercial lenders - at 4.0 per cent. Consequently, the reverse repo rate - at which the RBI borrows from lenders - stood at 3.35 per cent.

  2. That was in line with economists' expectations. All 66 respondents in a poll by news agency Reuters had predicted a status quo on the repo rate.

  3. A large majority in that poll saw no cuts until the fourth quarter (January-March) of current financial year.

  4. The central bank retained its "accomodative" stance on monetary policy to support the coronavirus-hit economy, which rules out a hike for the time being. 

  5. The RBI projected the country's GDP or gross domestic product to contract 9.5 per cent in the current financial year, which ends in March 2021. He, however, added that "a faster and stronger rebound is eminently feasible" if the current momentum of upturn gains ground.

  6. The RBI Governor said inflation is likely to remain at elevated levels in September, and ease in the third and fourth quarters of current financial year.

  7. Governor Shaktikanta Das said the country is entering into a decisive phase in the fight against the pandemic. "Relative to pre-COVID levels, several high frequency indicators are pointing to the easing of contractions in various sectors...and the emergence of impulses of growth... By all indications, the deep contractions of Q1 are behind us," he said.  

  8. On the ongoing coronavirus crisis, Mr Das said "silver linings are visible in the flattening of the active caseload curve across the country... Barring the incidence of a second wave, India stands poised to shrug off the deathly grip of the virus and renew its tryst with its pre-COVID growth trajectory." (Read Full Statement)

  9. The RBI chief also said that food grain production was set for record highs, and factories as well as cities were coming back to life. "Against all odds, we shall strive and revive,"  Mr Das said, in conclusion.

  10. The RBI has already slashed the repo rate by 115 basis points (bps) since late March. The latest meeting of the Monetary Policy Committee - which has three new external members who voted in today's decision - was originally due to conclude on October 1.


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