This Article is From Feb 06, 2020

RBI Keeps Lending Rate Unchanged At 5.15%, Pegs Growth At 6% In 2020-21

RBI Policy: All six members of the Monetary Policy Committee voted in favour of maintaining the status quo on policy.

RBI Governor Shaktikanta Das said there is room for further monetary easing going forward

The Reserve Bank of India (RBI) kept the repo rate unchanged at 5.15 per cent on Thursday, in line with economists' expectations, in a bid to combat inflation. The central bank, however, retained its accommodative monetary policy stance as growth remains lacklustre. RBI Governor Shaktikanta Das-led Monetary Policy Committee decided to continue with an "accommodative" policy stance "as long as it is necessary to revive growth, while ensuring that inflation remains within the target". The "underlying theme of our decisions is financial stability", said the RBI governor. All six members of the Monetary Policy Committee voted in favour of maintaining the status quo on policy.

Here are 10 things to know:

  1. The RBI said the economy continues to be weak and the output gap remains negative, projecting a gross domestic product (GDP) growth rate of 6 per cent for the next financial year starting April 1 and retaining the estimate for the current financial year at 5 per cent. 

  2. According to a poll of economists conducted by news agency Reuters before the Budget announcements last week, the RBI is expected to keep the repo rate unchanged until at least October, when it is seen resuming its easing path.

  3. Acknowledging that there was room for a rate cut going forward, RBI Governor Shaktikanta Das said that any further easing of policy will depend on the evolving economic situation. One should not see a repeat of status quo in monetary policy as future policy action and hinted at rate cuts going ahead, he said during a media interaction. 

  4. Assuming a normal South West monsoon in 2020-21, the RBI raised its projections for consumer inflation to 6.5 per cent in the quarter ending March 31, after retail inflation worsened to its highest level recorded in more than five years in December last year, primarily driven by higher food prices.

  5. The RBI governor said "headline inflation has peaked" and is likely to fall to 5.4 per cent, 5.1 and 4 per cent going forward. The RBI expects consumer inflation to come in at 5.4-5.0 per cent in the first half of financial year 2020-21, and 3.2 per cent in the third quarter. The central bank tracks consumer inflation - or the rate of increase in consumer prices - primarily for formulating its monetary policy.

  6. In relief to a large number of small businesses, the RBI decided to extend the benefit of a one-time loan restructuring scheme to GST-registered micro, small and medium enterprises (MSMEs) meeting certain conditions. The central bank said detailed guidelines will be issued shortly.

  7. The RBI said some high-frequency indicators point to a lift in the momentum of economic activity but there is a need to await incoming data to gauge their sustainability. 

  8. According to the findings of a private survey, manufacturing activity expanded at its quickest pace in nearly eight years in January with robust growth in new orders and output. Activity in the dominant service industry accelerated in January at the fastest pace in seven years on strong domestic demand.

  9. The central bank said the measures on rural economy and infrastructure announced in the Union Budget should help the growth momentum in the near term. The corporate tax rate cuts of September 2019 should help boost the growth potential over the medium term, the RBI added in its sixth policy statement of 2019-20. 

  10. The policy statement comes days after the presentation of Union Budget, which some economists say is expected to support growth over the longer term but insufficient to provide an immediate boost to the ailing economy.

(With agency inputs)

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