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RBI optimistic on growth, vows to keep ample liquidity; experts discuss impact of monetary policy

Updated : February 05, 2021 07:26:27 IST

The Reserve Bank of India's (RBI) Monetary Policy Committee (MPC) kept the repo rate unchanged in the sixth and last bi-monthly monetary policy meet for the financial year 2020-21, governor Shaktikanta Das said on Friday. With no change this time as well, the repo rate currently stands at 4 percent. The reverse repo rate has been maintained at 3.35 percent.

The MPC voted unanimously to keep policy rates unchanged.

The central bank has maintained its policy stance at "accommodative" which could continue for as long as necessary to revive growth.

The announcement is in line with the Street's expectations as it was expecting a status quo by the central bank this time.

All 10 economists polled by CNBC-TV18 said they didn't expect any rate cut or hike in the February 5 policy as the central bank was expected to remain in a watchful mode.

Governor Shaktikanta Das reassured markets that liquidity in the system will remain ample. This after government announced a massive Rs 12 lakh crore borrowing plan in Budget 2021. The governor expects the borrowing plan to be carried out smoothly.

The RBI also said that it would restore the cash reserve ratio (CRR), currently at 3 percent to 4 percent in a phased manner. The CRR is the percentage of a bank's total deposit that needs to be maintained with the RBI in the form of liquid cash.

The central bank has projected a 10.5 percent GDP growth in the next fiscal. This is slightly below the government's economic survey forecast of 11 percent. Governor Das said that there is no disconnect between exuberant equity markets and real economic activity as was highlighted in its financial stability report last month.

The RBI also opened the doors for retail investors to directly invest in government securities. And while rules are awaited, market participants say small investors may prefer to buy gilts through mutual funds as they have a tax advantage.

The RBI governor also highlighted that they are undertaking a ''deep dive'' on the stress in the banking system by increasing supervision and this will amount to an asset quality review.

To discuss the impact the monetary policy, Latha Venkatesh spoke to Soumya Kanti Ghosh, Group CEA at SBI; Pranjul Bhandari, Chief India Economist at HSBC; B Prasanna, Head - Global Markets Group at ICICI Bank and Rajiv Anand, ED - Wholesale Banking at Axis Bank.

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