RBI Monetary Policy: Experts weigh in as Shaktikanta Das keeps repo-rate unchanged

The Reserve Bank of India's (RBI) decision to continue with its accommodative stance this fiscal as well as the next year will ensure sustainable economic growth, experts said on Friday. The RBI on Friday left the repo rate unchanged at 4% for a third straight meeting as inflation remains stubbornly high. 

"The RBI policy of maintaining the status quo was expected but the continued forward guidance of an extended accommodative stance will continue to serve the markets well," State Bank of India's Chairman Dinesh Khara said. 

The RBI also revised its growth outlook, seeing a milder 7.5% contraction in the fiscal year to March 2021 as opposed to its October forecast of a 9.5% shrinkage of the GDP.  

“The RBI governor has hinted towards green shoots of economic recovery with improved projections in GDP growth. The unchanged repo rate indicates the accommodative stance of the central bank as all efforts are being made to revive growth in the economy. The urban and rural demand is gaining momentum and we can expect a similar boost in activity witnessed during the festive season going into the new year with appropriate safety measures and norms being followed,” Sanjay Palve, MD, Finance of Essar Capital said. 

Meanwhile, Das said there is no plan to take the Wholesale Price Index-bases inflation as an anchor for determining monetary policy, and added that the central bank will continue to stick to the current Consumer Price Index-based inflation.

“We appreciate RBI’s efforts to maintain an accommodative stance. The unchanged Repo rate is understandable despite a spurt in inflation, which has been primarily driven by disruptions in the supply chain, excessive margins, and indirect taxes. However, it is imperative that going forward there is a cap on lending rates for low-cost funding in order to boost the demand, the growth, and the new wave of investments. This and the central bank’s recent measures along with appropriate reforms for an Atmanirbhar Bharat will definitely fuel the country’s economic revival. Improved growth projections are also reflective of an optimistic recovery led by a visible increase in urban and rural demand,” Rajiv Agarwal, MD & CEO, Essar Ports said.

RBI holds interest rates; projects GDP growth returning to positive territory in current quarter

The RBI also decided to increase the limit for contactless card transactions to Rs 5,000 from Rs 2,000 at Point of Sale (PoS) terminals from January 1, 2021 in view of the COVID-19 pandemic and feedback from stakeholders.

Here are the highlights from RBI Governor Shaktikanta Das' statement:

• Repo-rate kept unchanged for the third time in a row at 4%
• Indian economy expected to contract 7.5% this fiscal, lower than 9.5% contraction projected in Oct
• Economy to clock growth of 0.1% in Q3; Q4 to see 0.7% growth 
• Retail inflation projected at 6.8% in Q3, 5.8% in Q4
• Fiscal stimulus moving beyond being supportive of consumption and liquidity to supporting growth-generating investment. 
• Private investment still slack and capacity utilisation has not fully recovered
• RBI ready to take further measures to ease liquidity; will continue to respond to global uncertainty
• Limit for contactless card transaction to be raised from Rs 2,000 to Rs 5,000 per transaction from January
• RTGS system to be made 24X7 in next few days
• Commercial, cooperative banks to retain profit made in 2019-20; not to make any dividend payment
• RBI committed to preserving depositors' interest in the financial system. 

(With inputs from agencies)