NEW DELHI : The Reserve Bank of India (RBI) announced its sixth bi-monthly monetary policy statement for 2019-20 today in which the repo rate was left unchanged, as was widely expected. The Monetary Policy Committee (MPC), led by Governor Shaktikanta Das, said it has decided to keep the policy repo rate unchanged at 5.15% and persevere with the accommodative stance as long as necessary to revive growth, while ensuring that inflation remains within the target.

RBI monetary policy updates:

  • RBI said the decision to conduct new one-year and three-year repos worth 1 lakh crore, will ensure better monetary policy transmission by enabling banks to reduce lending rates.
  • Dr. Arun Sigh, Dun and Bradstreet India: “The RBI’s move to keep policy rate and monetary stance unchanged will help in controlling inflationary expectations and providing support to growth. The sharp rise in the inflation rate has constrained monetary policy rate cut. Now, RBI’s focus has to be on the monetary policy transmission in credit market as the full benefit of rate cut has not been passed to consumer yet. Lower lending rate will provide some respite to investment rate and growth going forward. The surging inflation and slowing growth are raising serious concerns about the future growth prospects of the economy."
  • "Over the coming weeks and months, onion prices are likely to ebb as supply conditions improve," RBI MPC said.
  • RBI has no plans to monetise fiscal deficit: Das
  • RBI said the increase in limit of deposit insurance is not likely to impact the balance sheet of banks much due to the increase in premium outgo. The premium for bank deposits is being increased to 12 paise from 10 paise for the time being.
  • Shubhada Rao, chief economist, Yes Bank: "(The RBI's rate decision is) in line with expectations. It is likely to maintain a status quo in the near term. With an inflation forecast of 3.2% factored in for Q3 FY21, in conjunction with our forecast, we expect RBI rate action in October 2020 monetary policy. (We) expect 25 bps rate cut then."
  • The RBI governor said continuity in policy from last pause should not be read as a pointer to future actions. "While the decision is as per expectations, it is important not to discount RBI," Das said.
  • Rumki Majumdar, Economist, Deloitte India: "As had been expected by us, the RBI decided not to cut rates and to be in a wait-and-watch mode in the Feb policy meeting while continuing on with an ‘accommodative’ stance. This is because inflationary nor demand pressures for goods other than food in the near future may remain low owing to weak demand and excess capacity issues. The expansionary monetary policy stance was necessary and is an assurance that there will be no reversal of easing and that the RBI will not hike rates immediately".
  • The current slowdown in the economy is driven by liquidity issues, slow credit off-take, and weak rural demand. Therefore, if the RBI chooses to adopt ‘neutral’ stance, it might impact liquidity and lending further.
  • RBI Governor Shaktikanta Das said the central bank has many instruments to address the sluggishness the economy and not just interest rates.
  • On the outbreak of coronavirus in China, RBI Governor said it may impact tourist arrivals and global trade.
  • "By keeping the stance at accommodative, by granting CRR exemption against the loans given to the stressed sectors and extending a one-time restructuring for MSMEs, etc, the policy has strengthened the stimulus package announced by the Union Budget," Rupa Rege Nitsure, group chief economist, L&T Financial Holdings, said.
  • RBI Governor said headline inflation has now peaked and is now expected to go down.
  • Chokkalingam G, head of Equinomics Research & Advisory, said RBI's policy is on expected lines and has kept some room to cut rates in the future, which will give some boost to the market.
  • From February 15, RBI will conduct term repos of one-year and three-year tenors of appropriate sizes for up to a total amount of 1,00,000 crore at the policy repo rate.
  • The share market rose after RBI MPC meeting. Sensex climbed 0.4% to 41,297.81 as of 12:14 pm while the Nifty advanced 0.3%.
  • To give a fillip to digital banking and enabling regional rural banks (RRBs) to provide cost effective and user-friendly solutions to their customers, it has been decided to allow RRBs, like other commercial banks, to act as merchant acquiring banks, using Aadhaar Pay – BHIM app and POS terminals.
  • Monetary transmission across various money market segments and the private corporate bond market has been sizable, RBI Governor Shaktikanta Das said.
  • The Reserve Bank said it will put in place a framework for establishing a Self-Regulatory Organisation (SRO) for digital payment system by April 2020. This will foster best practices on security, customer protection and pricing, among others.
  • RBI has decided to link interest rate of loans given to medium enterprises also to an external benchmark from April.
  • RBI said the monetary transmission has improved in sectors where new floating rate loans have been linked to the external benchmark.
  • "Economic activity remains subdued and the few indicators that have moved up recently are yet to gain traction in a more broad-based manner. Given the evolving growth-inflation dynamics, the MPC felt it appropriate to maintain status quo," the Monetary Policy Committee (MPC) said.
  • All six committee members of RBI MPC voted in favour of the decision.
  • Clearing of cheques could soon be faster as the RBI has decided to extend the Cheque Truncation System (CTS) to all over India.
  • The MPC has observed that the economy continues to be weak and the output gap remains negative.
  • RBI said overall the inflation outlook remains highly uncertain. "Accordingly, the MPC will remain vigilant about the potential generalisation of inflationary pressures as several of the underlying factors cited earlier appear to be operating in concert," the MPC said in its statement.
  • RBI MPC policy statement blames the unusual spike in onion prices for the surge of inflation above the upper tolerance band around the target in December 2019.
  • The RBI has revised CPI inflation projection upwards to 6.5% for Q4 of 2019-20, 5.4-5% for H1 of 2020-21; and 3.2% for Q3 of 2020-21, with risks broadly balanced.
  • GDP growth for FY 2020-21 has been projected at 6% – in the range of 5.5-6% in H1 and 6.2% in Q3
  • RBI said these decisions are in consonance with the objective of achieving the medium-term target for consumer price index (CPI) inflation of 4 per cent within a band of +/- 2 per cent, while supporting growth.
  • RBI has also decided to continue with the accommodative stance as long as it is necessary to revive growth, while ensuring that inflation remains within the target.
  • RBI's policy repo rate current stands at 5.15%.
  • The RBI is not expected to cut interest rates before June.
  • “The MPC will weigh limited explicit fiscal support for growth, still mixed signs of growth pickup and emerging headwinds to growth from global developments such as the health scare in China," said A. Prasanna, chief economist at ICICI Securities Primary Dealership in Mumbai. “In this backdrop, the MPC might decide to wait for more data and clarity before making up its mind in April."
  • RBI can raise its near-term forecasts after inflation surged to 7.35% in December, the fastest pace in more than five years. The RBI’s previous projection was for price growth of 4.7%-5.1% in the six months through March 2020 and 3.8%-4% in the first half of the next fiscal year.
  • All 37 economists in a Bloomberg survey predict the benchmark repurchase rate will stay at 5.15%, the lowest level since 2010.
  • Investors will be looking for cues related to economic growth from the RBI statement.
  • RBI's MPC meeting comes just after the release of the Budget and Economic Survey.
  • The three-day MPC meeting began on Tuesday.
  • RBI will release its policy statement at 11:45 am while the MPC will hold a press conference from noon.

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