RBI’s Monetary Policy Statement, 2020-21- Resolution of the Monetary Policy Committee (MPC) October 7-9, 2020; Key Takeaways and Highlights

The newly appointed Monetary Policy Committee (MPC) with Dr. Ashima Goyal, Professor Jayanth R. Varma and Dr. Shashanka Bhide as external members met on 7th, 8th and 9th October, 2020 in its first meeting and the 25th under the monetary policy framework that was instituted in June 2016.  The meeting of the six-member panel, earlier scheduled for September 29-October 1, was rescheduled after appointment of independent members was delayed.

The MPC evaluated domestic and global macroeconomic and financial conditions and voted unanimously
- to leave the policy repo rate unchanged at 4 per cent.
- It also decided to continue with the accommodative stance of monetary policy as long as necessary – at least during the current financial year and into the next year – to revive growth on a durable basis and mitigate the impact of COVID-19, while ensuring that inflation remains within the target going forward.
-The Marginal Standing Facility (MSF) rate and the Bank rate remain unchanged at 4.25 per cent.
-The reverse repo rate stands unchanged at 3.35 per cent.

These decisions were in consonance with the objective of achieving the medium-term target for consumer price index (CPI) inflation of 4 per cent within a band of +/- 2 per cent, while supporting growth.

Here are the 10 Key Takeaways from the Monetary Policy:

1. MPC unanimously kept the rates unchanged. Rates kept unchanged as inflation has remained above 6% . Borrowers hoping for EMI's cooling off will have to wait.
2. While COVID19 remains a threat the economy is showing signs of improvement.  Expect the economy to contract to 9.5% in FY 21. GDP is estimated to contract 9.8%in Q2 FY 21. GDP may breakout of contraction and ener positive zone by Q4 of FY 21. Phase of deep contraction is behind us and silver linings are visible, said the RBI Governor. India Stands poised to shrug off the deadly virus and restart its tryst with Pre-Covid Growth trajectory.
3. Retail Inflation will remain elevated in September and ease closer to target by Q3 & Q4 FY 21. Aggregate demand remains subdued.
4. RBI will conduct Special and outright OMO &  will double weekly OMO purchases to Rs 20000 crores.
5. RBI will introduce ON-TAP TLTRO for Banks toborrow upto Rs. 1 Lakh Crore at floating rates. This move is expected o give some impetus to credit growth.
6. RBI assured that the borrowing programme of the centre and states for the rest of 2020-21 will be completed in a non-disruptive manner,  WMA limit of Central Govt. is kept at Rs. 1.25 lakh Cr.
7. RBI extended the dispensation of the enhanced HTM limit of 22% upto March 31, 2022.
8. RBI will allow Banks to increase exposure to Retail, Small Borrower ,which mainly consists of individuals and small businesses (i.e. with turnover of upto ₹50 crore), to Rs.7.5 Cr. and will rationalise risk weights for all new housing loans until March 31,2022.
9. In 2018 RBI put in place a framework for Co-origination of loans by Banks and NBFC for lending to priority sector. RBI has now decided to extend the scheme to all NBFC's including HFC's. This will allow greater operational flexibility to lender.
10. RBI Governor said 'Relative to pre-covid levels several high frequency indicators are pointing to increasing of contractions in various sectors. By all indications, the deep contractions of Q1 are behind us."

Highlights of RBI's monetary policy statement

Following are the highlights of RBI Governor Shaktikanta Das' statement and resolution of the Monetary Policy Committee (MPC):

• Will extend scheme for co-lending to all NBFCs, HFCs, says Guv Das.
• Reserve Bank of India stands ready to undertake further measures as necessary to assure market participants of access to liquidity and easy finance conditions: Shaktikanta Das, RBI Governor.
• Food grain production set for record highs, says Guv Das.
• Current inflation hump transient; agriculture outlook looks bright, oil prices to remain rangebound: RBI Governor Das.
• RBI to maintain comfortable liquidity position; ₹20,000 crore-OMO auction next week, says Governor Das
• 24*7*365 availability of RTGS for high value transactions from Dec 2020.
• Focus must shift from containment to revival, says Das.
• On-tap TLTRO of ₹1 lakh crore to be made available till March 2021, says Guv Das. It will be linked to repo rate.
• Real GDP to decline by 9.5% with a risk towards downward revision, says Shaktikanta Das.
• India likely to see a 3-speed recovery, says Guv Das.
• Indian economy entering into decisive phase, seeing easing of contraction in various sectors. Deep contractions of Q1 are behind us & silver linings visible in easing caseloads across India, says Guv Das.
• GDP growth may turn positive in Q4, says RBI Governor.
• RBI maintains its accommodative stance.
• RBI Governor Shaktikanta Das announced that the MPC has kept status quo on rates. Repo rate 4%. Reverse repo rate 3.35%.
• The rupee strengthened by 9 paise to close at 73.24 against the US dollar on Thursday, supported by positive domestic equities and weak American currency. At the interbank forex market, the rupee traded in a narrow range. It opened at 73.29 against the American currency and gained further ground to settle at 73.24, up 9 paise from its previous close of 73.33.
• Retail inflation in India likely rose further above the central bank's medium-term target last month as food prices climbed due to lingering supply disruptions, a Reuters poll found, reducing the chances of another interest rate cut.
• Sensex opened flat at 40,256, while Nifty at 11,863. Banks and rate sensitive stocks are in focus as RBI Governor Das will announce policy decision soon. 
• Four things to watch out for from RBI policy

        - Rate Action: The MPC is likely to ensure continuity of policy.

        - MPC Voting Pattern: The newly inducted members are supposed to have lent a dovish tilt to the MPC.

        - Forecasts: Economists are also expecting RBI to provide inflation and growth projections for the first time since the February 2020 meeting.

        - Liquidity: The market is waiting for RBI’s views on the large banking-system surplus liquidity.

• Experts expected RBI to maintain status quo on the benchmark lending rates in view of the inflation. In the last monetary policy review on August 6, the RBI chose inflation as its priority.

For detailed Statement of RBI Governor please click on the following link: Governor’s Statement – October 9, 2020 ;

For detailed MPC resolution Please click on the following link: Monetary Policy Statement, 2020-21 Resolution of the Monetary Policy Committee (MPC) October 7-9, 2020 ;

Please click on the following link for the full Monetary Policy Report: Monetary Policy Report – October 2020

Source: rbi.org.in ; LiveMint