RBI MPC maintains status quo to 5.15%.
Shaktikanta das who is serving as 25th RBI Governor has announced no rate cut in last bi-monthly policy of FY20 and maintains repo rate at 5.15 %, last year total five time rate cut was given but then after its second consecutive decision to keep rates on hold. The 6 member MPC is scheduled to announce the sixth bi-monthly monetary policy for 2019-20. For the FY 21 GDP growth target set to 6%. Reverse repo rate is maintained at 4.9% and bank rate stances at 5.4%. All the 6 members voted in favor maintain the rates.
The MPC notes that inflation has rushed above the higher tolerance band around the target in December 2019, mostly on the back of the uncommon hike in onion prices. Over the near-term, it said that onion prices are probable to retreat as supply situations recovers.
Indian Economic outlook:
RBI expects inflation to remain raised in the short-run, says overall inflation outlook “remains highly uncertain”. FQ4 FY20 CPI inflation target reviewed upwards to 6.5 %. CPI for April-September 2020 looks around to 5-5.4%, the same for October-December period seen at 3.2 %. H1 FY21 CPI inflation target rose to 5-5.4 % from 3.8-4 %, the same for Q3 seems at 3.2%.
Q1FY21 GDP growth is seen in between of 5.5% to 6%. While Q3FY20 growth is seen at 6.2%. Shaktikanta Das said he thinks Indian economy will grow at 6% in FY21 and he added that policy space available for future action exists. He added that MPC will be proactive in 2020 as well.
Mr. Shaktikanta Das says that IIP data improved in November after shrinking in the previous three months. The output of core industries returned to positive territory in December after four months of contraction, he added.
Shaktikanta Das says that several high frequency gauges of services have turned upwards in the recent period, pointing to a modest revival in momentum, although the outlook is still muted. Amongst indicators of rural demand, while tractor sales grew by 2.4 per cent in December after ten months of a decline, motorcycle sales continued to diminish. Domestic air passenger traffic – an indicator of urban demand – posted double digit growth in November, followed by a modest growth in December. Growth in three-wheeler sales and railway freight traffic accelerated, while port traffic turned around in December.
The MPC statement said that the economy remains to be weak and the output gap remains negative. While some high-frequency indicators have twisted around and point to a boost in the momentum of economic activity, it said that there is a requirement to await incoming data to scale their sustainability. Overall it said that financial flows to the commercial sector have enhanced in recent months.
RBI deputy governor Michael Patra said Liquidity management is operating procedure of monetary policy. Long-term repo actions will not replace open market operations. He added that this is intended to bring down the cost of funds for banks.
RBI governor Shaktikanta Das said that no plan of monetizing the government deficit at present. As per deputy governor BP Kanungo, Deposit insurance increase may not have a major impact on bank balance sheets. RBI Governor says, RBI is mainly concerned about is the borrowing numbers.
Major Index erase gains after rate cut announcement
The rupee traded higher at 71.33 after the monetary policy committee of the Reserve Bank of India keeps the rates unchanged to 5.15% today. And major indices in the market remained stable. Bank nifty traded 340 points higher at 31340 and Nifty almost increased by 35 points at 12120 levels.