RBI to announce its 5th bi-monthly monetary policy for current fiscal

Andrew Cummings
December 5, 2019

The RBI's Monetary Policy Committee kept the repo rate unchanged at 5.15 perecnt.

Official data showed growth has fallen to an over six-year low at 4.5 per cent in the second quarter, and the RBI also sharply cut its FY20 estimate to 5 per cent-a full 110 bps from its October revision, which again was a 90 basis points (bps) downward revision from the August assessment.

"The decision was mainly a result of inflation rising over the past few months, so it looks like the central bank took more of a cautionary approach", Darren Aw, Asia economist at Capital Economics told Al Jazeera. "However, given the evolving growth-inflation dynamics, the MPC felt it appropriate to take a pause at this juncture", the committee said in a statement. Though the inflation rate has crossed the 4 per cent target rate in October, RBI's major focus will be on growth revival. He further said transmission, which was bothering the central bank for a long time, is expected to improve with the introduction of linking loan pricing to external benchmark system, which banks have adopted now. "In this context, there is also a need for greater flexibility in the adjustment in interest rates on small saving schemes", it added.

On the issue of transmission of rates to customers by banks, the RBI said most banks had linked their lending rates to the policy repo rate of the Reserve Bank.

" RBI wishes to see the lagged impact of its front-loaded 135 basis point cut in the policy rate along with some of the slew of fiscal measures plays out for future growth " said Abheek Barua, chief economist HDFC Bank. "The median term deposit rate has declined by 47 bps during February-November 2019. This augurs well for transmission to lending rates, going forward", it added. The GDP in the June quarter closed at 5.1 per cent.

"Several measures already initiated by the government and the monetary easing initiated by the Reserve Bank since February 2019 are gradually expected to further feed in the real economy" said RBI governor Shaktikanta Das at its post policy media briefing on Thursday".

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