RBI February monetary policy: Central bank leaves repo rate unchanged at 5.15%

The Reserve Bank of India’s (RBI) Monetary Policy Committee (MPC) kept the repo rate unchanged in the February policy, the last of the current financial year and the first of the new decade, on the back of rising retail inflation. This is the second time in a row that the central bank has left the repo rate unchanged. With no change again, the repo rate stands at 5.15 percent.

The central bank has maintained its policy stance at “accommodative” which could continue for as long as necessary to revive growth. The reverse repo rate has been maintained at 4.90 percent.

All six MPC members have voted in favour of the policy move.

The repo rate is the rate at which the central bank of the country lends funds to the commercial banks. The commercial banks borrow funds only if they witness a shortfall in their funds. The monetary policy committee of a country uses the reverse repo rate as a tool to control the money supply in the country.

A CNBC-TV18 poll had also predicted no change in the rate with an accommodative stance with all respondents voting on the same.

The repo rate was cut five times last year,  with the total reduction coming to 1.35 percent or 135 basis points.

The CPI-based inflation has been revised up to 5.4-5 percent for the first half of FY21 from the 3.8-4 percent projected earlier while it is seen at 3.2 percent for the third quarter of FY21.

The central bank, in its policy report, said that the inflation outlook is likely to be influenced by several factors going forward. The decline in food inflation is expected to be more pronounced during Q4FY20 as onion prices fall, it said, adding that higher vegetable production is likely to have a salutary impact on food inflation.

The report added that the recent pick-up in prices of non-vegetable food items is likely to sustain while crude prices are expected to remain volatile due to geopolitical tensions in Middle-East and uncertain global economic outlook.

According to the central bank, the increase in customs duties on retail consumption items may result in only a marginal one-time uptick in inflation.

The GDP growth projection for FY20 has been retained at 5 percent and it is at 6 percent for FY21. The GDP growth forecast for 1HFY21 is seen at 5.5-6 percent and at 6 percent for Q3FY21.

India’s economy has been severely hit by a massive slowdown — which many experts say is structural, high unemployment rate, declining savings and a slump in consumption.

The GDP growth slipped to 4.5 percent in the second quarter of FY20, a multi-year low.

The government has estimated India’s GDP growth during fiscal 2019-20 at 5 percent as compared to 6.8 percent in the year-ago period, according to the first advance estimates released by the Central Statistics Ministry.

The Economic Survey 2020 has estimated India’s real economic growth at 6-6.5 percent for FY21. The Union Budget 2020, which was presented by Finance Minister Nirmala Sitharaman on Saturday,  has estimated the nominal GDP growth at 10 percent for FY21.

Among key non-monetary announcements, the RBI decided to extend the benefit of one-time restructuring without an asset classification downgrade to standard accounts of GST registered Micro, Small and Medium Enterprises (MSME) that were in default as on January 1, 2020. The restructuring under the scheme has to be implemented latest by December 31, 2020.


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