RBI Governor Shaktikanta Das
TheNFAPost Podcast
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Mumbai, NFAPost: The Reserve Bank of India (RBI)’s Monetary Policy Committee (MPC) has kept the repo rate unchanged at 4% and reverse repo rate 3.45%, amid rising inflationary pressure and a grim economic outlook. Also, brought some liquidity crisis facing to startup by including them in the priority sector.

RBI Governor Shaktikanta Das announced the decisions after the 24th bimonthly meeting of the RBI’s six-member Monetary Policy Committee (MPC).

RBI made it clear that the real GDP growth will remain negative in FY21. The RBI also gave some helping hand to lenders in view of the Covid-19 pandemic and the resultant stress in the system.

Lenders can henceforth go for a restructuring facility on some loans that were standard as on March 1, 2020. An expert committee will be set up under K V Kamath will come up with framework and resolutions plans for eligible lenders.

Interest rate unchanged

The RBI had last revised its policy rate on May 22, in an off-policy cycle, to perk up demand by cutting interest rate to a historic low.

Governor Shaktikanta Das said the MPC voted to keep interest rate unchanged and continue with its accommodative stance to support growth.

“Global economic activity has remained fragile. A surge in Covid-19 cases has subdued early signs of revival. Economic activity had started to recover, but a surge in infections has forced the imposition of lockdowns.” Supply chain disruptions were persisting and inflationary pressures were evident across segments,” said RBI Governor Shaktikanta Das

The MPC in its outlook noted that inflation was expected to remain elevated in the second quarter of 2020-21 and ease thereafter in the second half of the year. On the economic growth front, RBI said India’s real gross domestic product would contract in the first half of FY21 as well as full financial year.

Liquidity facility

RBI alos announced additional special liquidity facility of Rs 5,000 crore each will be provided to the National Bank for Agriculture and Rural Development (Nabard) and the National Housing Bank (NHB).

The RBI would also amend priority-sector lending guidelines to remove regional disparity. This will give a higher weight will be given to districts with lower credit flows.

The start-up sector has been included as a priiority sector and the cap on credit to the renewable energy sector has been raised.

To ease some stress on households in the wake up of the coronavirus pandemic, the cap on loans against gold has been enhanced from 75% to 90% of the value.

Amid fast-changing macroeconomic environment and a deteriorating outlook for growth, the MPC has had to hold off-cycle meetings in March and May this year. The MPC has cumulatively cut the repo rate by 115 basis points in these two meetings, taking the total policy rate reduction since February 2019 to 250 basis points.

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