RBI Forecasts a 9.5% Plunge in GDP; The Key Rates Remain Unchanged

Shaktikant Das, the Governor of the Reserve Bank of India (RBI) today announced the policy decision of the Monetary Policy Committee (MPC) after the first meeting of the three newly appointed members. The MPC decided to keep the lending rate (repo rate) unchanged at 4% and the reverse repo rate at 3.5%. He said that there must be a shift of focus from containment to revival.

The meeting of the 6-member MPC was rescheduled from September 29, 2020.

MPC is a statutory committee of the RBI appointed to fix the benchmark policy interest rate (repo rate) to control inflation and to limit the inflation within specified target levels. Three eminent economists, Jayant Verma, Ashima Goyal, and Shashanka Bhide had their first meeting today after being appointed. 

Highlights of the RBI Monetary Policy.RBI

Following are some of the major points that were concluded during the meeting:

  • The Governor after concluding the three-day meeting with the MPC announced as long as the inflation remains within the target of 4%, they have decided to maintain an accommodative position to revive growth on a durable basis and mitigate the impact of COVID-19 disruption.
  • India will face a fall in the Gross Domestic Product (GDP) following the pandemic induced lockdown. The GDP rate to plunge 9.6% in the financial year 2020-21, a further contraction from the earlier forecast of 3.2%.
  • After the meeting, the MPC has decided to keep the repo rate, which is the rate at which RBI grants funds to the Commercial banks, remains unchanged at 4% and the reverse repo rate at 3.35%.
  • The MPC believes that the Consumer Price Index (CPI) or in other words, the retail price of goods and services has elevated more than what was forecasted in August due to specific disruption in the supply. The aim is to keep the retail inflation within a band of +/- 2%, which is 4% through its policy rate changes.
  • The Rupee value has strengthened by 9 paise closing at 73.24 against the US dollar.
  • 24*7*365 availability of RTGS for high-value transactions from December 2020.
  • India is likely to see a 3-speed recovery.
  • Indian economy entering into a decisive phase, seeing an easing of contraction in various sectors. The Gross Domestic Product (GDP) growth may turn positive in Q4.
  • The Governor stated that they would extend the co-lending schemes for all Non-Banking Financial Companies (NBFC’s) and Housing Finance Companies (HFCs).
  • The RBI will undertake the necessary measures to assure people with comfortable financial conditions and smooth access to liquidity.
  • The Governor also added that there would be Rs. 20,000 crore Open Market Operations (OMOs) next week.

The Reserve Bank of India had kept postponing the meeting as the appointment of the independent member was delayed. On the conclusion on the meeting, several points came to the front that was discussed, keeping in mind the current state of the economy. 

Read: RBI delists six state-owned banks from the second schedule.



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