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RBI MPC: Highlights from the February monetary policy announcements

RBI MPC: Highlights from the February monetary policy announcements

RBI MPC: Highlights from the February monetary policy announcements
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By CNBC-TV18 Feb 6, 2020 12:09:57 PM IST (Updated)

The Reserve Bank of India's (RBI) Monetary Policy Committee (MPC) kept the repo rate unchanged at 5.15 percent in its February meeting 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.

The Reserve Bank of India's (RBI) Monetary Policy Committee (MPC) kept the repo rate unchanged at 5.15 percent in its February meeting 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.

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The central bank has maintained its policy stance at “accommodative”, while the reverse repo rate has been maintained at 4.90 percent.
The February MPC is the last of the current financial year and the first of the new decade.
Highlights of the February MPC announcement:
RBI maintains status quo, leaves repo rate unchanged at 5.15 percent
“Accommodative” stance maintained for as long as necessary to revive growth, while ensuring inflation remains within target
CPI forecast for Q4FY20 revised up to 6.5 percent vs 5.1-4.7 percent for 2HFY20 seen earlier
CPI for 1HFY21 revised up to 5.4-5 percent from 4-3.8 percent projected earlier
CPI for Q3FY21 seen at 3.2 percent
GDP growth projection for FY20 retained at 5 percent
GDP growth projection for FY21 at 6 percent
GDP growth forecast for 1H FY21 seen at 5.5-6 percent, Q3 at 6.2 percent
All six MPC members voted in favour of the policy move
Inflation
Inflation outlook is likely to be influenced by several factors going forward
Decline in food inflation expected to be more pronounced during Q4FY20 as onion prices fall
Higher vegetables production likely to have a salutary impact on food inflation
Recent pick-up in prices of non-vegetable food items likely to sustain
Crude prices likely to remain volatile due to geo-political tensions in Middle , uncertain global economic outlook
Subdued demand conditions, muted pricing power of corporates, correction in energy prices may limit the pass-through to selling prices
Domestic financial markets remain volatile, may have an influence on the inflation outlook
Base effects would turn favourable during Q3 FY21
Increase in customs duties on retail consumption items may result in only a marginal one-time uptick in inflation
Growth
Private consumption, particularly in rural areas expected to recover on the back of improved rabi prospects
Rise in food prices will support rural incomes
Easing of global trade uncertainties should encourage exports and spur investment activity
Breakout of the coronavirus may impact tourist arrivals and global trade
Monetary transmission in terms of a reduction in lending rates and financial flows to the commercial sector has progressed
Rationalisation of personal income tax rates in the Union budget should support domestic demand
Outlook
Going forward trajectory of inflation, excluding food and fuel, needs to be carefully monitored
Pass-through of remaining revisions in mobile phone charges, the increase in prices of drugs, impact of new emission norms play out and feed into inflation formation
Overall, the inflation outlook remains highly uncertain
MPC will remain vigilant about the potential generalisation of inflationary pressures
MPC notes that while there is a need for adjustment in interest rates on small saving schemes
MPC recognises that there is policy space available for future action
Path of inflation is, however, elevated and on a rising trajectory through Q4:2019-20
Economic activity remains subdued and the few indicators that have moved up recently are yet to gain traction
Other important non-policy announcements
Revised liquidity management framework
Day fixed rate repo rate has been abolished
Four 14-day term repos every fortnight being conducted now also withdrawn
14-day term repo/reverse repo at variable rate coinciding with CRR cycle to be main toll of liquidity mgmt
RBI will conduct longer-term variable repo operations of more than 14 days
Standalone Primary Dealers to be allowed to participate directly in all overnight liquidity mgmt ops
 Long-term repo operations for improving monetary transmission
RBI to conduct 1-year and 3-year term repos for up to Rs 1,00,000 crore at policy repo rate
 Incentivising bank credit to specific sectors
Banks allowed to deduct incremental credit for certain sectors from their net deposits for maintaining CRR
CRR amount to fall for every incremental auto, housing, MSME loans given
 External benchmarking extended to medium enterprises
Banks to now offer external benchmark linked new floating rate loans to medium enterprises
 One-time restructuring MSME scheme extended
One-time restructuring scheme for MSME advances extended, to be implemented latest by December 31, 2020
 Guidelines for projects under implementation in commercial realty
Extension of DCCO of project loans for commercial real estate permitted to be extended by a year without downgrading asset classification
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