RBI Monetary Policy Review: Key Things To Know

The Reserve Bank of India (RBI) kept the repo rate unchanged at 4% amidst COVID-19

RBI’s governor Saktikanta Das Headed Monetary Policy Committee (MPC) has kept the repo rate unchanged at 4%, due to the rising inflationary pressure and a grim economic outlook. RBI governor also said that the real GDP growth will remain negative in the financial year 2021.

In the three-day monetary policy committee meeting from august 4. About 50% of the economists had expected a rate cut while the rest expected a pause in repo rates. In 2020, the Monetary Policy Committee (MPC) has already slashed the repo rate by 115 bps amid the COVID-19 outbreak and consequent economic fallout.

RBI Monetary Policy takeaways:

Repo rate: The repo rate has been kept unchanged at 4%. Consequently, the reverse repo rate under the liquidity adjustment facility (LAF), the marginal standing facility (MSF) rate and the bank rate remains unchanged respectively at 3.35%, 4.25% and 4.25%.

Growth: Amidst the Coronavirus outbreak, RBI governor Shaktikanta Das has said that for the financial year 2021 as a whole, real GDP growth is expected to be negative. He added that early containment of the COVID-19 pandemic may impart an upside to the outlook.

Inflation: RBI governor Shaktikanta Das said that headline inflation may remain elevated in the Q2 financial year 2021 but may moderate is the second half of the year (H2FY21) aided by large favourable base effects.

Restructuring of loans: Amidst cash flow disruption due to COVID-19, RBI will allow stressed MSME borrowers to restructure their debt under the existing framework, provided their accounts with the concerned lender were classified as standard as on March 1, 2020. But this restructuring will have to be implemented by March 31, 2021.

Special liquidity facility: RBI governor Shaktikanta Das said that an additional special liquidity facility of RS 10,000 crore will be provided at the policy repo rate to National Bank for Agriculture and Rural Development (NABARD) and National Housing Bank (NGB). This will consist of Rs 5,000 crore to NBH to shield the housing sector through housing finance companies (HFCs). There will also be Rs 5,000 crore to the to reduce the stress being faced by smaller non-bank finance companies (NBFCs) and micro-finance institutions in obtaining access to liquidity.

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