RBI’s MPC Holds Repo Rate at 5.15%: Key Takeaways

The Reserve Bank of India (RBI) on Thursday announced that the six-member monetary policy committee (MPC) has decided to leave the benchmark repo rate unchanged at 5.15%. With the status quo on repo rate, 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.

Here are key takeaways from the sixth bi-monthly monetary policy statement for FY20:

-- All MPC members including Chetan Ghate, Pami Dua, Ravindra Dholakia, Janak Raj, Michael Debabrata Patra and RBI governor Shaktikanta Das voted in favour of the status quo decision.

-- The MPC noted that inflation has surged above the upper tolerance band around the target in December 2019, primarily on the back of the unusual spike in onion prices.

-- The MPC said policy space is available for future action. However, it said that the path of inflation is elevated and on a rising trajectory through Q4 of FY20. The outlook for inflation is highly uncertain at this juncture, it added.

-- RBI has revised Q4 FY20 CPI (consumer price index) inflation target upwards to 6.5%. Consumer inflation for April-September 2020 revised to 5-5.4%, while the same for October-December period is seen at 3.2%.

-- RBI has projected GDP (gross domestic product) growth for 2020-21 at 6%. It expects growth in the range of 5.5-6% in the first half of the fiscal year, and 6.2% in the third quarter.

-- RBI can strive in other ways to revive growth, said governor Shaktikanta Das, adding that status quo is not a pointer to future action.

-- Shaktikanta Das said that several high frequency indicators of services have turned upwards in the recent period, pointing to a modest revival in momentum, although the outlook is still muted.

-- In a major relief, MSMEs will be allowed extension of the one-time restructuring scheme for advances. RBI said that it has been decided to extend the benefit of one-time restructuring without an asset classification downgrade to standard accounts of GST-registered MSMEs that were in default as on 1 January 2020.

-- RBI has also decided to link pricing of loans by scheduled commercial banks for medium enterprises also to an external benchmark effective 1 April 2020.