ECONOMIC OUTLOOK & RBI POLICY

The Reserve Bank of India (RBI) left key interest rates unchanged on Friday as widely expected, while retaining an accommodative monetary policy stance to support the coronavirus-hit economy.The RBI sees India’s real GDP contracting by 9.5% in the ongoing fiscal year, and economic growth only turning positive in the final January-March quarter, RBI Governor Shaktikanta Das, in a webcast on Friday after a meeting of the monetary policy committee (MPC). The MPC as expected kept the repo rate, its key lending rate, at 4.0%, while the reverse repo rate or the key borrowing rate stayed at 3.35%. The central bank has slashed the repo rate by 115 basis points (bps) since late March.

 

RBI POLICY:
 
   -- MPC voted unanimously to leave policy repo rate unchanged at 4%
   -- To continue accommodative stance as long as possible to revive growth
   -- Reverse repo, MSF and Bank Rate unchanged at 3.35% and 4.25%, respectively.
   
KEYNOTE : "The MPC evaluated domestic and global macroeconomic and financial conditions and voted unanimously to leave the policy repo rate unchanged at 4%," said RBI Governor Shaktikanta Das in a video conference, adding, "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." 
 
INFLATION OUTLOOK:
 
   -- CPI inflation will remain elevated in Sep; To ease gradually in Q3 and Q4
   -- Supply disruptions and associated margins and mark-ups are major factors driving inflation. As supply chains are restored, these wedges should dissipate.
   -- Food prices to ebb especially on vegetables like tomatoes, onion, potatoes by Q3 with kharif arrival.
   -- CPI inflation is projected at 6.8% for Q2:2020-21, at 5.4-4.5% for H2:2020-21 and 4.3% for Q1:2021-22, with risks broadly balanced 
 
GROWTH OUTLOOK:
 
   -- Recovery in rural economy will strengthen further, but turnaround in urban demand likely to be lagged due to social distancing norm
   -- Contact-intensive services sector will take time to regain pre-COVID levels.
   -- Manufacturing firms expect capacity utilisation to recover in Q3FY21
   -- Private investment and exports are likely to be subdued, especially as external demand is still anaemic.
   -- Real GDP growth in 2020-21 is expected to be negative at (-)9.5%, with risks tilted to the downside
   -- Real GDP projected at (-)9.8% in Q2FY21; (-)5.6% in Q3; and 0.5% in
 
 
LIQUIDITY MEASURES:
 
   -- Announcing an on-tap TLTRO with tenors of upto 3 years with total amount of Rs 1 lakh crore at a floating rate linked to repo rate. 
   -- Amount and period to be enhanced after review. 
   -- Liquidity availed under this scheme can be used to provide bank loans toward this sector. 
   -- In order to provide certainty to banks, RBI to extend dispensation on enhanced limits of SLR securities under HTM category to March 31, 2022
   -- RBI announces OMO purchase of Rs 20,000 cr on Oct 15
   -- RBI to conduct OMOs in SDL as a special case during current fiscal year.
   -- RBI proposes to start round-the-clock availability of RTGS facility.
 
OTHER MEASURES:
 
   -- All new housing loans risk will be linked only to loan to value
   -- WMA limit for the Centre kept at Rs 1.25 lakh crore
   -- Revised regulatory limits for retail portfolio of banks
   -- RBI extends co-lending norms to all NBFCs including HFCs in respect of all eligible priority sector loans
   -- RBI to give on tap authorisation to all payment system operators on perpetual basis 
   -- RBI to discontinue the system-based automatic caution-listing; will undertake caution-listing on case-specific recommendations of AD banks.
 
 
Data as released by Reserve Bank of India, Compiled by Eforex India