RBI monetary policy updates: Central bank has many other tools to revive growth, not just interest rates, says Shaktikanta Das

The Monetary Policy Committee (MPC) of the RBI is expected to maintain status quo on the rates keeping in view the current economic situations.

FP Staff February 06, 2020 12:40:40 IST
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RBI monetary policy updates: Central bank has many other tools to revive growth, not just interest rates, says Shaktikanta Das



Feb 06, 2020 - 13:06 (IST)

'RBI's accomodative stance will help ease credit flow'

RBI expectedly held the policy rates even as it raised the near term inflation forecast to 6.5 percent, said Ravikant Bhat, Analyst - BFSI & Insurance, IndiaNivesh.

However, noting improved arrivals of Kharif and Rabi harvests and easing household inflation expectations, the inflation is forecast to ease to 3.2 percent by Q3FY21E, he said.

The accommodative stance of the policy along with multiple supportive measures for MSMEs, NBFCs and banks are stepping in the right direction which will help ease credit flow, help banks manage stress and soften loan pricing, Bhat said.

Feb 06, 2020 - 13:04 (IST)

'Reduced CRR requirement for incremental retail loans positive step'

Along expected lines, MPC unanimously decided to maintain status quo on the policy rate but remain accommodative, as long as necessary, to revive growth, said Amar Ambani, Senior President and Head of Research – Institutional Equities, YES Securities.

"Reduced CRR requirement for incremental retail loans was a positive step. With inflation expected to remain elevated in the coming months, we see a long pause on Repo rates," he said.

"However, we expect the RBI to continue to act with other monetary tools like OMOs and Operation Twist. RBI and the government will likely take steps to improve transmission of rates in the economy. We see headline inflation coming off significantly in H2 FY21, with favorable base effect kicking in and fuel and food prices decelerating,"  Ambani said.

"RBI will be in a position to cut rates again after a long pause, in our opinion. We’re yet to work out extent of cuts, but a 25 basis points should come through at the very least,” he said.

Feb 06, 2020 - 13:01 (IST)

'Law to strengthen cooperative banks good step'

RBI deputy governor MK Jain says that the law to strengthen cooperative banks will help the Reserve Bank regulate and supervise cooperative banks more effectively. 

Feb 06, 2020 - 12:58 (IST)

'Repo rate status quo will help control inflationary expectations'

The RBI’s move to keep policy rate and monetary stance unchanged will help in controlling inflationary expectations and providing support to growth, said Arun Singh, Chief Economist, Dun and Bradstreet India.

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, he said.

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, Singh said.

Feb 06, 2020 - 12:53 (IST)

'Govt spending provides counter-cyclical support to growth'

Feb 06, 2020 - 12:50 (IST)

'Deposit insurance cover hike may not affect banks'

Deposit insurance increase may not have a major impact on bank balance sheets, says RBI deputy governor BP Kanungo.

Feb 06, 2020 - 12:47 (IST)

'RBI stays put with consumer confidence and growth in mind'

The real estate sector has been in particular benefitting from rate cuts which were transmitted to some extent through mortgage rates and repo linked loans to end consumers, said Ramesh Nair CEO & Country Head, JLL India. This was reflected in the 6 percent y-o-y growth in residential sales in 2019.

Moreover, the recently announced extension of benefits to both developers and homebuyers for affordable housing in the Union Budget is expected to maintain the growth momentum in the sector, he said.

The RBI’s move today to ease rules for projects delayed for reasons beyond the control of promoters by one year will provide the much-needed elbow room for developers.

The repo rate breached the 10-year low mark in October 2019 at 5.15 percent. The past trends indicate that further rate cuts would have been ineffective in reviving growth.

The revival of economic growth depends on the balance between fiscal and monetary policies which weigh on the consumer sentiment.

Feb 06, 2020 - 12:45 (IST)

'Operation Twist brought in for more monetary policy transmission'

Operation Twist is a mechanism used to bring more monetary policy transmission, says RBI governor Shaktikanta Das.

Feb 06, 2020 - 12:43 (IST)

Long-term repo action will not replace open market operations: RBI dy governor

Long-term repo actions will not replace open market operations, says RBI deputy governor Michael Patra.

He added that this is intended to bring down the cost of funds for banks.  Liquidity management is operating procedure of monetary policy, he said.

Feb 06, 2020 - 12:41 (IST)

14-day term repos every fortnight withdrawan: RBI

RBI MPC LIVE updates:  After leaving benchmark interest rates rates unchanged in the second consecutive policy review, RBI governor Shaktikanta Das on Thursday said the central bank has many other instruments to address the sluggishness the economy, not just interest rates.

The Reserve Bank of India (RBI) in its sixth bi-monthly monetary policy pegged GDP growth for FY21 at 6 percent but guided towards an uncertain inflation outlook.

In a January 31 release, the National Statistical Office (NSO) had revised down real GDP growth for FY19 to 6.1 percent from 6.8 percent provided in the provisional estimates of May 2019. Given this, the central bank noted that the economy is still plagued by deep output gaps.

"The RBI has several instruments to address the sluggishness in the growth momentum," Das told reporters at the customary post-policy conference.

The Reserve Bank of India on Thursday projected the economy to expand by 6 percent during the next financial year, pegging it at the lower end of the GDP growth estimate of the Economic Survey. The survey, tabled in Parliament last month, estimated the GDP growth during FY21 at 6-6.5 percent.

After three-day deliberations, the Monetary Policy Committee (MPC), headed by Reserve Bank of India (RBI) Governor Shaktikanta Das, observed that the economy continues to be weak and the output gap remains negative.

Real GDP growth for 2019-20 was projected at 5 percent in the December 2019 policy.

RBI governor Shaktikanta Das said that the recent rise in food prices has shifted the terms of trade in favour of agriculture, which will support rural incomes. He added that the easing of global trade uncertainties should encourage exports and spur investment activity.

Excluding onions, food inflation would have been lower by 4.7 percentage points and headline inflation by 2.1 percentage points in December.

RBI governor Shaktikanta Das said that inflation in several other food sub-groups such as milk, pulses, cereals, edible oils, eggs, meat and fish also firmed up.

S&P BSE Sensex was trading over 200 points higher at 41,367 points, while the broader Nifty50 index was ruling at 12,141, up 53 points.

Shares of housing finance companies surged higher after the RBI said that 'no downgrade of commercial realty loan if delay genuine'.

RBI governor Shaktikanta Das says that after extensive review, the decision to key policy rates unchanged was taken. This, he said, was discounted but added that one should not discount the Reserve Bank.

MPC said that the higher fiscal deficit in 2019-20 has not resulted in an increase in market borrowings compared to the budget estimates. The fiscal deficit is budgeted to decline to 3.5 percent of GDP for 2020-21.

MPC of Reserve Bank of India keeps the repo rate unchanged at 5.15 percent.

With status quo on repo rate, the MPC 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.

Amid slowing economic growth and rising inflation, the Reserve Bank of India (RBI) will unveil its last monetary policy for the current financial year today. This is the sixth bi-monthly monetary policy statement of this financial year. The RBI said it will place the resolution of the MPC on its website before noon on 6 February.

The Monetary Policy Committee (MPC) of the RBI is expected to maintain status quo on the rates keeping in view the current economic situations.

In its previous monetary policy review in December, the RBI had decided for a status quo, leaving the key repo -- the rate at which it lends to banks — at 5.15 percent.

RBI governor Shaktikanta Das headed six-member rate-setting panel had started its three-day brainstorming meeting on Tuesday (4 February) in the backdrop of Union Budget projecting a widening of fiscal deficit amid slowing economy and hardening inflation.

RBI monetary policy updates Central bank has many other tools to revive growth not just interest rates says Shaktikanta Das

File image of RBI governor Shaktikanta Das. Reuters

The Monetary Policy Committee (MPC), which announces the benchmark lending rate (repo) on bi-monthly basis, has been tasked by the government to tame retail inflation based on Consumer Price Index (CPI) at 4 percent (+,- 2 percent). The retail inflation that for several months remained in the comfort zone of the central bank has started inching up and crossed the 7 percent mark during December 2019, mainly due to spiralling prices of vegetables.

MPC will have a tough time, say experts 

Experts said the MPC members are going to have a tough time as slowing economy makes the case for reduction in repo rate, while rising inflation and higher fiscal deficit will require the central bank to either hike the rate or maintain a status quo.

The government has estimated India's gross domestic product (GDP) at 5 percent in the current financial year owing to both domestic as well as global factors amid weakening consumption demand in the country.

In December, retail inflation also peaked to a five-year high of 7.3 percent, mainly due to costlier vegetables, specifically onion and tomato.

In its previous monetary policy review in December, the RBI had decided for a status quo, leaving the repo unchanged at 5.15 percent on concerns of rising inflation.

While presenting the Union Budget on 1 February, Finance Minister Nirmala Sitharaman projected the fiscal deficit to widen to 3.8 percent of the GDP against the earlier estimate of 3.3 percent.

Budget 2020 announcements may impact policy?

Budget 2020 decisions may also reflect in the RBI policy. For FY20, the government has surpassed the budgeted fiscal deficit target. Fiscal deficit target of 3.3 percent of GDP has been revised upwards to 3.8 percent of GDP for FY20.

For FY21, the fiscal deficit as percent of GDP has been projected at 3.5 percent of GDP. For FY21, the government’s gross borrowings are budgeted at Rs 7.8 lakh crore, estimated to be 9.8 percent higher than Rs. 7.1 lakh crore in FY20 RE.

Further, the net borrowing requirement is pegged at Rs 5.40 lakh crore, which is 15 percent higher from a year ago. With higher net borrowings for FY21, the RBI may front-load the central government borrowings.

Monetary Policy Committee has done its bit: CRISIL

CRISIL Ratings in its post-Union Budget 2020-21 comment has said, "Monetary policy has done its bit, but with moderate and slow success."

It added that the RBI cut the repo rate cumulatively by 135 basis points (bps) through calendar 2019, but lending rates tarried with just nearly 50-bps decline. "Even as credit demand has fallen, risk aversion and weak sentiment have affected the willingness to supply credit, too."

Rupee range-bound with decline in crude prices

In January 2020, the rupee has largely remained range-bound between Rs 70-72 per dollar with decline in the crude oil prices owing to the demand concerns after the outbreak of Coronavirus in China and narrowing current account deficit.

But the outflow of FPIs has put pressure on the exchange rate.

Updated Date:

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