Inflationary woes: RBI retains rates, maintains accommodative stance
However, the Monetary Policy Committee (MPC) of the central bank maintained the growth-oriented accommodative stance, thus opening up possibilities for more future rate cuts
Mumbai: The Reserve Bank of India (RBI) on Friday retained its key short-term lending rates to subdue the unabatedly high inflation rate.
However, the Monetary Policy Committee (MPC) of the central bank maintained the growth-oriented accommodative stance, thus opening up possibilities for more future rate cuts.
Resultantly, MPC voted to maintain the repo rate — or short-term lending rate for commercial banks, at 4 per cent.
Likewise, the reverse repo rate was kept unchanged at 3.35 per cent, and the marginal standing facility (MSF) rate and the ‘Bank Rate’ at 4.25 per cent.
As per recent data, the Consumer Price Index (CPI), which gauges the retail price inflation, spiked in October to 7.61 per cent from 7.27 per cent in September.
Though not-comparable, India had recorded a retail price inflation of over 3 per cent in the corresponding period of previous year.
The RBI maintains a medium-term CPI inflation target of 4 per cent. The target is set within a band of +/- 2 per cent.
In an online address detailing the MPC’s decision, RBI Governor Shaktikanta Das said: “At the end of its deliberations, the MPC 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 through 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.”
According to Das, the MPC was of the view that inflation is likely to remain elevated, with some relief in the winter months from prices of perishables and bumper kharif arrivals.
“This constrains monetary policy at the current juncture from using the space available to act in support of growth. At the same time, the signs of recovery are far from being broad-based and are dependent on sustained policy support,”.
“A small window is available for proactive supply management strategies to break the inflation spiral being fuelled by supply chain disruptions, excessive margins and indirect taxes. Further efforts are necessary to mitigate supply-side driven inflation pressures. The MPC will monitor closely all threats to price stability to anchor broader macroeconomic and financial stability.”
Besides, Das said that India’s economy has witnessed a faster than anticipated recovery and its expected Real GDP growth rate will be at (-) 7.5 per cent in FY21.
He cited that several high frequency indicators have pointed to growth in both rural and urban areas.
“Consumers remain optimistic about the outlook and business sentiment of manufacturing firms is gradually improving. Fiscal stimulus is increasingly moving beyond being supportive of consumption and liquidity to supporting growth-generating investment,” he said.
“On the other hand, private investment is still slack and capacity utilisation has not fully recovered. While exports are on an uneven recovery, the prospects have brightened with the progress on the vaccines.”
“Taking these factors into consideration, real GDP growth is projected at (-) 7.5 per cent in 2020-21, (+) 0.1 per cent in Q3:2020- 21 and (+) 0.7 per cent in Q4:2020-21; and 21.9 per cent to 6.5 per cent in H1:2021- 22, with risks broadly balanced.”
Furthermore, Das elaborated that RBI will take additional measures to enhance liquidity support to targeted sectors having linkages to other sectors, deepen financial markets and conserve capital among banks, NBFCs through regulatory initiatives amongst other steps.
Later on during a press interaction, Das, admitted that past inflation expectations have not materialised. “Our expectations on inflation, which we had over the last two months obviously that has not materialised. And we have to keep in mind that we are dealing with an extraordinary situation. A once in hundred years kind of event, and the kind of impact it has produced on the economy as well as on human lives, not just in India but across countries. It’s huge. So, we have to respond to this particular situation.”
RBI’s Deputy Governor Michael D. Patra said: “You will see the trajectory of inflation completely changing. But what we have given you is the baseline with things, standing as they are today.”
Bond, share write-offs in bank rescue acts done in depositor interest, legal: Das
Mumbai: Governor Shaktikanta Das on Friday defended RBI’s decisions to write-off bonds and shares of lenders during rescues of Yes Bank and Lakshmi Vilas Bank as legal ones taken in depositors’ interest.
Das said there cannot be a fixed template while dealing with cases of stress experienced by banks and working out solutions.
It can be noted that during the Yes Bank’s rescue in March this year, over Rs 7,000 crore of additional tier-I bonds were written-off, while in LVB’s case, tier-II bonds of nearly Rs 320 crore along with the entire outstanding shares, were written-off. Many of these instances were unprecedented and aggrieved parties have approached courts.
“The actions we take are in the best interest of the depositors and taken in compliance with legal provisions and regulatory guidelines,” Das told reporters in a virtual press conference after the announcement of the bi-monthly policy review by the RBI.
He added that the RBI is “not indifferent to any segment of the economy or financial markets” and reiterated that decisions are taken in the best interest of depositors, safeguarding which is the paramount responsibility of the RBI.
“All our actions are within the legal framework, as per law and as per regulatory guidelines,” he said, declining to elaborate further.
Yes Bank had to be bailed-out in an act led by SBI, where the country’s largest lender and other financial institutions poured-in over Rs 10,000 crore of capital to get the troubled lender out.
In the case of LVB, the RBI decided to merge the old-age private sector lender faced with a situation of capital constraints, with Singaporean lender DBS.
Now you can get handpicked stories from Telangana Today on Telegram everyday. Click the link to subscribe.
Click to follow Telangana Today Facebook page and Twitter .
