In a surprise move, The Reserve Bank of India (RBI) Governor Shaktikanta Das-headed monetary policy committee (MPC) maintained the repo rate at 5.15 per cent points (bps) in its fifth bi-monthly monetary policy meeting of the financial year 2019-20 (FY20) on Thursday. However, GDP growth forecast for FY20 was slashed to 5 per cent from 6.1 per cent.
This halt came after five consecutive cuts. The short-term lending rate, or repo rate, was unchanged at 5.15 per cent. All six committee members voted against the rate cut. In its October meet, the RBI had cut interest rate by 25 bps to 5.15 per cent.
Key Highlight of the MPC meeting:
- All members of the MPC voted in favour of keeping rates unchanged. The MPC also decided to continue with the accommodative stance as long as it is necessary to revive growth, while ensuring that inflation remains within the target.
- The MPC recognises that there is monetary policy space for future action. However, it said that given the evolving growth-inflation dynamics, the MPC felt it appropriate to take a pause at this juncture.
- The CPI inflation projection is revised upwards to 5.1-4.7 percent for H2:2019-20 and 4.0-3.8 percent for H1:2020-21, with risks broadly balanced.
- Core inflation will remain below 4 percent, says RBI governor.
- Real GDP growth for 2019-20 is revised downwards from 6.1 percent in the October policy to 5 percent.
- MPC said that economic activity has weakened further and the output gap remains negative. However, several measures already initiated by the government and the monetary easing undertaken by RBI since February 2019 are gradually expected to
further feed into the real economy. - Shaktikanta Das says that Reserve Bank will facilitate the setting up of a self-regulatory
body (SRB) as a first step towards the development of the secondary market for corporate loans.
Indian indices are witnessing volatile trade post RBI kept repo rate unchanged.
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