The Reserve Bank of India (RBI) in its bi-monthly monetary policy review on Friday kept the key policy rate repo at 4 per cent, given the high level of inflation. Due to no change in the repo rate, the interest rates on people’s housing, vehicles and other retail loans can remain unchanged. However, the central bank has maintained a liberal stance in terms of monetary policy. This means that he can cut the policy rate if needed in the coming months.
The Reserve Bank has also said in the review that from the third quarter the pace of the economy will come into positive range. The bank has projected a 0.1 percent increase in GDP in the third quarter and 0.7 percent in the fourth quarter, given the improvement in various sectors of economic activity. However, the economy is projected to decline by 7.5 percent in the entire financial year 2020–21.
Giving online information about the decisions taken in the Monetary Policy Committee (MPC) meeting, RBI Governor Shaktikanta Das said that in view of the high level of retail inflation, all six members of the MPC agreed to keep the policy rate unanimous by consensus. . He also said that the MPC has kept inflation in line with the target, to accelerate economic growth continuously and reduce the impact of Kovid-19 on the economy as long as it is necessary … at least the current finance Year and next financial year… have decided to maintain a soft stance.
This decision of the RBI is in line with the target of keeping the consumer price index based inflation at 2 per cent with a 4 per cent increase, accelerating economic growth. With this decision of MPC, while the repo rate will remain at 4 percent, the reverse repo rate will remain at 3.35 percent. While both the Bank Rate and the Marginal Standing Facility Rate will remain the same at 4.25 percent.
Repo rate is the rate at which banks take loans from the central bank for immediate needs, while the rate at which additional cash is received from banks by the Reserve Bank is called reverse repo rate. Earlier, the central bank has cut the repo rate by 1.15 percent since March to accelerate economic growth. The RBI has also revised the economic growth forecast for the current financial year 2020-21, looking at the improvement in figures such as vehicle sales, electricity consumption and freight.
Das said that it will fall by 7.5 percent in the current financial year and it is estimated to increase by 0.1 percent and 0.7 percent respectively in the third quarter and fourth quarter. Earlier, RBI had projected a 9.5 percent decline in economic growth rate in 2020-21.
In the second quarter of the current financial year, in view of the below-7.5 percent decline in economic growth, the RBI has revised the earlier estimate of GDP growth for the current financial year. In the first quarter of the current financial year, the economy recorded a major decline of 23.9 percent. According to the RBI, the MPC has predicted inflation to remain high. However, retail inflation is expected to come down due to softening of prices of food items in winter and better supply chain. According to Das, the inflation rate is expected to be 6.8 percent in the third quarter of 2020-21 and 5.8 percent in the fourth quarter, respectively. Whereas in the first half of the next financial year 2021-22, it is expected to be in the range of 5.2 percent to 4.6 percent.
Retail inflation (CPI) based inflation stood at 7.3 percent in September and 7.6 percent in October 2020. Das also said that the RTGS (instant transfer of money) system would be available 24 hours a day over the next few days. He also said that the limit of contactless transactions with the card will be increased from two thousand rupees to five thousand rupees from January 2021.
RBI Governor said that commercial and cooperative banks will keep the profits of 2019-20 with them and will not pay any dividend for the financial year. This was the 26th meeting of the six-member Monetary Policy Committee. It has three outsiders… Ashima Goyal, Jayant R Verma and Shanka Bhide. This three-day meeting of the committee began on December 2. The details of this MPC meeting will be released on 18 December.
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