RBI Policy: Rates unchanged, scope for future policy action2 min read . Updated: 06 Feb 2020, 11:59 AM IST
- The decision to hold rates was unanimous
- The committee noted that economy continues to be weak and the output gap remains negative
Mumbai: The Monetary Policy Committee of the Reserve Bank of India on Thursday left policy rates unchanged for the second time, citing evolving growth-inflation dynamics.
The repo rate -- the rate at which banks borrow from the central bank -- remained unchanged at 5.15%, in line with Mint survey. RBI has cut policy rates by 135 basis points so far in 2019.
All six members of the MPC were unanimous in their decision to stand pat on rates.
“The MPC recognises that there is policy space available for future action. The path of inflation is, however, elevated and on a rising trajectory through Q4:2019-20. The outlook for inflation is highly uncertain at this juncture. On the other hand, economic activity remains subdued and the few indicators that have moved up recently are yet to gain traction in a more broad-based manner," said the policy statement.
The MPC has sharply raised consumer price inflation projection to 6.5% for the fourth quarter of fiscal year 2020 from 5.1-4.7% earlier. The committee pegged CPI inflation for the first half of FY21 at 5.4-5.0% compared with 4-3.8% earlier.
For the third quarter of FY21, the forecast stands at 3.2% with risks broadly balanced. The committee noted that inflation trajectory will be determined by several factors including the pass through of telecom charges, increase in prices of drugs and pharmaceuticals and the impact of new emission norms.
“The MPC anticipates that the combination of these factors may keep headline inflation elevated in the short-run, at least through H1:2020-21. 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," read the statement.
The MPC has projected GDP growth for fiscal 2021 at 6%– in the range of 5.5-6.0% in H1 and 6.2% in third quarter. This is line with the GDP growth projection of the economic survey which pegged the growth at 6-6.5%.
The committee had earlier projected GDP growth for the first half of fiscal 2021 at 5.9-6.3%. The committee noted that economy continues to be weak and the output gap remains negative. While some high-frequency indicators have turned around and point to a lift in the momentum of economic activity, there is a need to await incoming data to gauge their sustainability, the committee noted
The MPC also noted that while there was need for adjustment in interest rates on small saving schemes, the external benchmark system introduced from 1 October, 2019 has strengthened monetary transmission. These developments should amplify the effects of the cumulative policy rate reductions undertaken by the Reserve Bank since February 2019 and pull up domestic demand going forward, it said.